Govt opposes Vedanta move to sell zinc assets

New Delhi: In a setback to billionaire Anil Agarwal's mining group, the government has opposed Vedanta Ltd's proposal to sell its international zinc business to Hindustan Zinc Ltd for USD 2.98 billion over concerns of valuation. The government has threatened to take legal action to stop the sale of the Africa-based assets to HZL, in which it holds a 29.54 percent stake.

"We would like to bring to your attention that the Government of India will oppose any proposed resolutions in furtherance of such agenda matter and will explore all legal avenues available to the Government of India in this regard," said Sanjiv Verma, Director, Ministry of Mines, in a letter addressed to the HZL management.

In the letter, shared by the company with the stock exchanges, the Ministry of Mines said the deal is a "related party transaction" and the government would "like to reiterate'' its dissent.

Bone of contention

Anil Agarwal-promoted Vedanta Ltd, which owns close to 65 percent stake in HZL, rolled out a plan on January 19 earlier this year that a wholly new overseas subsidiary of HZL will be created with a funding of $2.9 billion. The plan also said that the new subsidiary will acquire the stake of THL Zinc Limited from THL Zinc Ventures Limited (an entity of Vedanta group). The government has opposed to this move, saying it will be a related-party transaction. "In the context of the proposed resolutions which envisage the acquisition of THL Zinc (a Vedanta company) by HZL (also a Vedanta company) this being a related party transaction, we, the government of India would like to reiterate our dissent on the matter," said the letter dated February 17.

Importantly, this is a special resolution and needs to be passed with a 75 percent majority.

Vedanta's debt-management efforts take a hit

With the opposition of the government, the debt management efforts of Vedanta Resources have taken a hit. The development comes a week after Vedanta Resources said it had slashed net debt by $2 billion in the last 11 months, to $7.7 billion, seeking to allay concerns days after S&P Global Ratings raised doubts about the billionaire Anil Agarwal-owned group's financial health. S&P Global had said the group's ability to meet its financial obligations beyond September would depend on a planned $2 billion fundraising as well as the proposed sale of THL Zinc Ltd, a Vedanta Ltd unit that holds zinc assets in Africa.

Vedanta's response

Responding to the government's opposition, HZL in a regulatory filing said that the company has not yet called for the meeting and its board would consider the government's position. It also said that the proposed transaction can only be done post approval of the shareholders in the general meeting.

The Rajasthan-based company has long been a cash cow for Agarwal's Vedanta group, squeezing out rich dividends. The latest proposed transaction is being seen as another way of extracting more funds out of HZL.

HZL CEO Arun Misra had said last week that the company is planning to get in touch with the mines ministry to resolve the differences over the acquisition of overseas assets of holding company Vedanta Ltd.

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