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The Centre is likely to delay or space out the off-load of its 29.54 per cent stake in Vedanta-owned Hindustan Zinc, as it continues to explore “best possible options”, officials aware of the discussions said.
Suggestions include “waiting out” the downturn cycle in metal stocks and time the stake off-load “appropriately”; whereas another set of opinion internally suggest that the off-load be held back “till the time the committee report on listing of commodity and mining businesses of the company be presented and reviewed”.
The report is expected to be presented by the second week of November or November-end, an official said.
There is a belief too that in case the corporate rejig creates better value, then it might help in improving the valuation of the Government stake at the time of disinvestment.
Earlier this year, the Vedanta-owned company and the country’s largest integrated zinc producer had announced plans to create separate entities for its zinc, lead, silver, and recycling businesses. The company, according to its CEO, Arun Misra, has appointed external advisors for a “comprehensive review” of its corporate structure. The company’s also authorised a committee of directors to evaluate and recommend options and alternatives.
In fact, it is being said, the Centre wants to ensure that its members be on the Board till the corporate rejig proposals are presented and then weigh in. In order to do that, the Government needs to retain at least 26 per cent stake in the company.
At present, the Centre owns 29.54 per cent in Hindustan Zinc and 64.92 per cent is held by Anil Agarwal-promoted Vedanta.
Roadshows on stake sale had been carried out earlier this calendar year; but the stake off-take announcement or OFS did not happen. Off load of Government stakes in-bulk or one-go is unlikely at the moment.
“This is a large shareholding and if the government wants to retain its directorship, then the maximum they can off-load at the moment is 3.5 - odd per cent. We have heard that the government wants piecemeal off load of its stake in Hindustan Zinc. And initially, it was said, that small tranches of 5 -7 per cent were being looked at keeping in mind the market acceptability and mood. Right now, we are hearing, it would be even smaller tranches. But nothing per se has been officially conveyed,” a Hindustan Zinc Board member told businessline.
Hindustan Zinc continues to be amongst the better managed Vedanta companies in terms of free cash and debt.
According to a report by consultancy firm, Motilal Oswal, cash and cash equivalent as of H1FY24 stood at ₹114,000 crore. Total debt has seen a reduction of ₹500 crore to ₹113,000 crore. Majority of the investments are in high-quality debt instruments.
When asked, Misra, CEO, Hindustan Zinc, told businessline: “Evaluation of the corporate structure is on. The pros and cons will be discussed once the report is presented by the second week of November or at around November-end. The idea is to create value for shareholders. I do not see a problem in getting the Centre on board if valuation of Hindustan Zinc goes up post such rejig. Or if the Government gets a better deal, say similar shareholding across two or three different entities each having good value. However, these are plans or ideas. For them to materialise, we will need to wait for the evaluation report.”
Zinc performance
Incidentally, zinc as a commodity or base metal has been among the weakest performers in the London Metal Exchange (LME) base metals category.
The LME three-month zinc is trading around $2,450 per tonne, down by 18 per cent since the start of the year. And prices are expected to hover around the $2,400-2,600 per tonne range globally.
Hindustan Zinc, however, manages a price of $3,000 per tonne range, and the current outlook on price remains to be so. It controls 75 per cent of the primary zinc market in India.
Zinc’s relative under-performance is down to a build-up of excess metal as the global market shifts from supply shortfall to widening surplus, Misra said, adding that the zinc market’s shift to surplus after two years of supply deficit is down to weaker-than-expected demand and higher-than-expected production.
He pointed out, that the demand continues to be “weak” in Europe, a key buyer market, and “there is still no good news coming out of China”. European demand is expected to contract by two per cent-odd this year due to slowing activity in the construction sector, which accounts for around half of zinc demand in the form of galvanised steel.
On the other hand, India “remains a bright spot” with demand expected to grow at three-four per cent backed by the Government’s infra-push; almost double the rest of the world which is pegged at 1.5-2 per cent growth.
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