Hindustan Zinc Government Stake Sale Approved by India

Hindustan Zinc Ltd. (HZ), India’s biggest producer of the metal, climbed to a one-month high after the government decided to sell its stake worth $2.8 billion. Parent Sesa Sterlite Ltd. also gained.

Shares of the zinc producer climbed 1.4 percent in Mumbai to 135 rupees, the highest level since Dec. 20. They surged 6.7 percent earlier. Sesa Sterlite climbed 1.6 percent to 208.75 rupees, while the benchmark S&P BSE Sensex rose 0.2 percent.

India will sell the shares in billionaire Anil Agarwal- owned Hindustan Zinc, Commerce Minister Anand Sharma said yesterday after market hours citing a cabinet decision. Sesa Sterlite will be the natural buyer, Jigar Mistry, a Mumbai-based analyst with HSBC Holdings Plc, wrote today in a report.

The planned sale, more than a decade after the government sold a majority stake in Hindustan Zinc, could give Agarwal’s holding company, Vedanta Resources Plc (VED), complete control of $3.9 billion in cash equivalents besides lead and zinc mines. Proceeds from the sale will help Prime Minister Manmohan Singh meet a goal of paring the budget deficit to a six-year low of 4.8 percent.

Fungible Cash

“With the government stake sale, Hindustan Zinc’s cash will be more fungible, and this will help support debt servicing plans of Sesa Sterlite,” said Giriraj Daga, a Mumbai-based analyst at Nirmal Bang Equities Pvt., who has a hold rating on both Sesa and Hindustan Zinc. “I believe Sesa Sterlite will try to secure as many shares as the government has to offer and later delist Hindustan Zinc.”

The government owns a 29.54 percent stake in the company whose market value is about $9.5 billion, according to data compiled by Bloomberg. India is also considering ways to sell its 49 percent stake in unlisted Bharat Aluminium Co. Ltd.

Agarwal in March 2012 offered 170 billion rupees ($2.8 billion) to buy the Indian government’s remaining stakes in Udaipur, Rajasthan-based Hindustan Zinc and Balco. The group, which had expected to conclude the deal in 2012, owns 64.92 percent of Hindustan Zinc and 51 percent of Bharat Aluminium, also known as Balco.

The plan had hit a hurdle after the nation’s law ministry said the stake sales needed lawmakers’ approval. The process gained momentum after Attorney General Goolam E. Vahanvati approved share sales through an auction, Press Trust of India reported on Jan. 14.

Open Market

Hindustan Zinc has not been a government-owned company for almost a decade and one way to sell shares would be in the open market, if the prices were considered to be fair, according to Press Trust, which cited Vahanvati’s communication with the law ministry.

Vedanta needs funds to expand mining operations at the zinc and aluminum units and to develop an iron ore project in Liberia.

Yesterday’s decision also removed uncertainty in the sale process following a probe by the nation’s top investigating agency. The Central Bureau of Investigation in December said it had started a preliminary inquiry into the role of Agarwal and some government officials in the share sales of Hindustan Zinc in 2002, citing irregularities in the divestment process.

A sale of the government stake may expedite decision making by Hindustan Zinc’s board. In 2010, Vedanta’s plan to buy Anglo American Plc’s Skorpion zinc mine in Namibia through Hindustan Zinc failed after the Indian government didn’t ratify the deal. Vedanta completed the sale through unit Sterlite Industries (India) Ltd., which in August was merged with iron ore miner Sesa Goa Ltd. (SSLT) to form Sesa Sterlite.

To contact the reporter on this story: Abhishek Shanker in Mumbai at ashanker1@bloomberg.net

To contact the editor responsible for this story: Jason Rogers at jrogers73@bloomberg.net

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