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BW Businessworld

A Glimmer Of Hope

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Anil Agarwal’s plans for Hindustan Zinc (HZL) and Bharat Aluminium Company (Balco) — stuck for the past eight years — might have just got a lifeline. The government has indicated its willingness to sell the residual stake in both the companies under the forthcoming disinvestment plan.
In July, Vedanta group chairman Anil Agarwal had written to Prime Minister Manmohan Singh to expedite the decision on the government’s residual stake sale. He offered $3.28 billion for a stake in both — $2.94 billion for the government’s 29.5 per cent stake in HZL and $338 million for 49 per cent stake in Balco.

But the government was not ready to accept the valuation. Agarwal, however, expressed his willingness to negotiate. After seeing the renewed enthusiasm from the government, Vedanta on 23 August increased the offer unanimously by $620 million to $3.9 billion — $3.37 billion for HZL and $550 million for Balco.

In the stake sale issue, the mining and finance ministries were poles apart, says a government official. He concedes that the Ministry of Mines, which was reluctant to let go of the government’s quasi control over HZL’s prolific mines, is now forced to heed the finance ministry’s urgency to meet budgeted divestment targets.

The stake sale can meet two-thirds of the government’s disinvestment target of Rs 30,000 crore for FY2012-13. However, the government is treading cautiously. “The stakes are high and the litigation is already there, so nobody wants to take a chance,” says an official.

Sterlite Industries, a subsidiary of London-listed Vedanta Resources, acquired 51 per cent stake in Balco for Rs 551 crore in 2001, when the Atal Bihari Vajpayee-led National Democratic Alliance (NDA) was in power. In April 2002, Sterlite Opportunities and Ventures (SOVL) bought 26 per cent stake in HZL from the government and 20 per cent from the public. The next year, SOVL bought additional shares of 18.92 per cent from the government, exercising the call option. The call option allowed the buyer to acquire the remaining equity in future.

Sterlite exercised the option in 2004, but it did not succeed as the government at the Centre had changed. The Congress-led United Progressive Alliance replaced the NDA. Since the disinvestment had come in for severe criticism and the new government had given up the policy of strategic sales, Agarwal had to wait.

In 2007, the firm went to court against the government, but the court held that since the dispute arose out of the shareholder agreement, it should be resolved through arbitration. The dispute went on with both the government and Sterlite approaching the Delhi High Court.

HZL is the cash cow in Vedanta’s stable, generating Rs 11,400 crore in revenues and Rs 5,500 crore in profits in the last financial year.

For utilising the cash and expanding the company further, Vedanta needs the final approval of the government, the second largest shareholder. The market values the company at Rs 55,800 crore as on 23 August.

If all goes well, the Vedanta group, which is undergoing a major restructuring, will clear one more obstacle.

(This story was published in Businessworld Issue Dated 03-09-2012)