Cabinet approves sale of government's 29.5% stake in Hindustan Zinc: Sources

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The Union Cabinet has approved sale of government's entire stake in Hindustan Zinc Limited, CNBC Awaaz reported on May 25, citing sources.

Vedanta Ltd, the parent firm, holds 64.92 percent stake in Hindustan Zinc, while the government holds 29.5 percent stake in the zinc-lead miner.

Reportedly, the offer size of the divestment will be decided closer to the transaction.

Also Read: Vedanta has 5% cap in Hindustan Zinc residual stake sale: Anil Agarwal

As of FY22, Vedanta has total consolidated debt of Rs 53583 crore while Hindustan Zinc's total consolidated debt stands at Rs 2844 crore.

In November 2021, the Supreme Court had allowed the government to divest its the remaining shareholding of 29.5 percent in Hindustan Zinc.

At current market price, the government's residual stake in Hindustan Zinc is valued at around Rs 38,000 crore.

Analysts expect the Hindustan Zinc stock to remain under pressure going forward given the overhang of a large stake sale. Since the government is looking to monetize its stake, there will be a likely reduction of premium to industry as liquidity increases and government presence on the board post any stake sale goes away.

"The company’s valuations (7.6x FY23 consensus EV/EBITDA) are at a sharp premium to Indian metal and mining companies which reflects the illiquidity premium and a premium for government presence on the Board, and we see the risk of valuation premium to peers reducing going forward as liquidity increases and government presence on the Board likely goes away post-stake sale", said analysts.

"Given that it is going to be a market sale, we struggle to see such a large stake being sold at one go, and most likely the government will sell at periodic intervals", analysts added.

At 2:28pm, shares of Hindustan Zinc Limited were trading at Rs 310.15 apiece on the BSE, up 4.87 percent, while the benchmark Sensex was at 53,897.60, down 155.01 points or 0.29 percent.