While reporting its quarterly earnings last month, Vedanta had announced that it will transfer its international zinc assets to Hindustan Zinc for $2.98 billion. However, the government has opposed Vedanta’s proposal to sell international assets to Hindustan Zinc.
The objection is that the valuation is slightly on the higher side which will have an impact on the share prices of Hindustan Zinc Ltd. The government’s, which owns 29.54 per cent in Hindustan Zinc, problem is that it is banking on the stake sell in the company to meet its divestment target for this fiscal year. If this valuation stays on the higher side, it will erode the share prices and become tough for the government to meet their divestment target.
Another objection raised by the government on the deal is the way that Vedanta Resources has cleared the sale of its international zinc business. This was done by ignoring the rights of minority stakeholders. Sources have told ET that objections were already raised during the board meeting and going forward, the Centre may initiate some action.
On the issue, DIPAM Secretary Tuhin Kanta Pandey told ET NOW that the government directors had opposed Vedanta’s proposal to sell international assets to Hindustan Zinc in the board meeting.
Hindustan Zinc shares under pressure
The Vedanta-Hindustan Zinc deal is valued at about $3 billion or Rs 24,146 crore, a valuation 15 times EV to EBIDTA vs 8.5 times of Hindustan Zinc’s current valuation. This expensive purchase turned out to be negative for Hindustan Zinc. Vedanta, meanwhile, was gaining on the day after it reported this transaction.
This deal could mean that Hindustan Zinc could turn into a net debt company from a net cash company, which is the reason why the company was reacting negatively to the news flow. The stock declined nearly 6.5 per cent on the day after it informed the exchanges about this acquisition.
After reports said that the government has opposed the sale of Vedanta’s international zinc assets sale, Hindustan Zinc have been under pressure. The share price tanked nearly 2 per cent during intraday trade on Tuesday. The stock price was at Rs 331.75 at 2:32 pm.
