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Last Updated : Oct 15, 2013 09:15 PM IST | Source: CNBC-TV18

Govt may expedite divesting stake in HZL, Balco: Tulsian

SP Tulsian of sptulsian.com says,” I think the government will now be happy to expedite the process of divesting their residual stake in HZL as well as in Balco.”


Vedanta Resources has received an enabling resolution from its shareholders for acquiring majority stakes in Hindustan Zinc and Bharat Aluminium Company (Balco). The London-lister mining conglomerate, which had acquired majority stake in Balco and Hindustan Zinc during 2001-2003, is said to have sweetened the initial offer by USD 40 million for buying majority stakes in both the companies, reports CNBC-TV18.


Commenting on the same SP Tulsian of sptulsian.com says,” I think the government will now be happy to expedite the process of divesting their residual stake in HZL as well as in Balco.”


Below is the verbatim transcript of his interview on CNBC-TV18


Q: Your initial reaction on what you make of Vedanta getting the shareholder approval for this offer to the government for the residual stake in HZL and Balco?


A: If you really see the contents of the resolution, it says the Vedanta Group or the company has empowered the promoters, or maybe the company to go ahead and settle with the government.


If we convert this into the Indian rupee for Hindustan Zinc it gives a value of about Rs 21,500 crore, if I take the current valuation. This translates into value per share at Rs 173, because the government is holding close to 124.8 crore shares which is 29.54 percent stake in HZL.


Even the analysts and even the government has taken the approximate amount of Rs 14000-17000 crore which they intend to mobilise from this stake sale. So, if you collectively add both these amounts, Rs 2,1600 crore from HZL and closer to Rs 3000 crore, it gives a Rs 24,600 crore to the government which is way ahead the estimates having made by the government.


If one takes the approximate amount of Rs 173 per s hare which has been authorised by the Vedanta or the parent company, and presuming there is some negotiation for upward revision may be in the share price to about Rs 180 then in fact that looks to me the fair price. Because the cash lying in the books of the company of HZL, it is close to about Rs 55-60 per share, so, one should not feel that Vedanta is really offering a hefty amount of may be Rs 173 per share.


The core earning of HZL it is closer to about Rs 11-12. So, even if you apply a PE multiple of 10, you are offering Rs 120 for core business, plus Rs 50-55 cash which is lying in the books because that will go to Vedanta. Eventually, they will be acquiring or will have a stake of close to 95 percent.


So, atleast we are reaching closer to the correct valuation. I think the government now will really be very happy to expedite this process of divesting their residual stake in HZL as well as in Balco.


We have all been hearing amendments in the mines act but they are all procedures to be carried out by the government. Initially that will be carried out by them. I don’t think that that should be a big problem.


Q: With this one transaction they are going to be almost halfway through as far as their disinvestment target is concerned?


A: This is taken as non-promoter holding because government and mining ministry and attorney general have all been talking of these statue amendments. The nationalisation act which has created this Hindustan Zinc, however, I am unable to understand that what was the rationale of showing this government holding of 29.5 percent as non-promoter.


Here, the government holding is shown as non-promoters which is ridiculous. I don’t think that that is the correct treatment having been given for reflecting the shareholding pattern of HZL. However, we need not argue on that because it doesn’t make any difference in the valuations and definitely government will be hard bargaining with Vedanta Group to extract the maximum out of them.


Coming on change of statute which Attorney General has been saying because this company has been created by a special statute and that has been set by the mining ministry also. Those things will all get carried out. I don’t think that that should really be a problem.


On meeting the target front - I think government is really moving now on the right path and they should look to mobilise Rs 25000 crore from here and they should look to mobilise from the stake sale in SUUTI.


For example take the case of Axis Bank; there they can mobilize again about Rs 10000-11000 crore. So, there is no point in unnecessarily expediting for dilution of stake in IOC or may be Steel Authority of India (SAIL) because there you are not fetching the right valuation because of the low appetite while the appetite for all these stakes whether you talk of HZL or Axis Bank, ITC, L&T

Government should rework or reframe their whole strategy of mobilising may be Rs 40,000-50,000 crore whatever amount they intend to mobilise in this financial year from these companies and not from companies like Coal India.



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First Published on Oct 15, 2013 09:15 pm
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