Vedanta hopeful of govt taking Rs 21,600 cr divestment bait

Anil Agarwal’s Vedanta Resources has sought shareholder nod to extend the offer to acquire residual government stakes in Hindustan Zinc Limited and Balco.  Vedanta shareholders will meet on October 30 to renew an enabling resolution that will allow the group cos’ to buy the remaining stake in HZL and Balco from government of India, reports CNBC-TV18's Sajeet Manghat.

Also read: Govt may expedite divesting stake in HZL, Balco: Tulsian

Vedanta Group currently holds 64.9 percent stake in HZL and 51 percent in Balco. It proposed the government on January 2012 to acquire the entire residual stake for Rs 17,200 crores valuing the combined stake at USD 3.2 billion at the then currency rate. It proposed to acquire HZL stake for USD 2.938 billion and Balco stake for USD 338 million.

In August 2012, it sought from the shareholder enabling powers to spend up to USD 3.369 billion to acquire the residual stake in both the companies. These powers lapsed in August this year. And though Vedanta does not have certainty on whether the government will accept its offer, it is keeping itself ready to save time in case government relents.

The London Stock Exchange listed parent is seeking shareholder nod to extend the offer by another year by seeking a spending limit of USD 3.482 billion. This limit includes USD 487 million it plans to pay for Balco. In rupee terms, Vedanta arm – Sesa Goa will spend up to Rs 21,635 crores at current USD-INR rates to acquire these stakes.

This is higher by 15% as compared to August 2012 spending limit and higher by 26% when compared to its offer to government in January 2012. Vedanta has reduced the valuation of Balco from USD 550 million last August to USD 487 million this time around.

While the headroom to hike stake in HZL is very limited, since it will breach the 75% minimum public shareholding regulation, it will have upto 12 months to divest nearly 19.4% stake to bring the stake back to below 75%. Vedanta says in case it fails to divest its stake to meet the MPS guideline, it will seek additional 1 year extension from SEBI.

The entire stake will be bought using internal cash accruals of group company Sesa Goa. Vedanta had indicated during the group restructuring that residual stake acquisition will be led by SesaGoa.

The question now is whether the government will take the bait. The offer is 26.8% higher that the Jan 2012 offer. But it does have a lot of ‘Ifs’ and ‘Buts’ attached. The government will have to seek amendment to Mines and Minerals (Development & Regulation) Act, 1957 as per the advice of the Law Ministry before it proceeds on this path of divestment. Both HZL & Balco were nationalised under the Act of the Parliament in 1960s and hence amendments have to be made under the Act before residual stake process is completed.