India opposes Hindustan Zinc's buyout of Vedanta's global zinc assets: Exclusive

The government has opposed the move of Hindustan Zinc buying out Vedanta's global zinc assets, sources with knowledge of the matter have told CNBC-TV18. The objection has also put the potential Offer for Sale (OFS) of Hindustan Zinc in the current financial year hanging in the balance.

Sources tell CNBC-TV18 that the Mines Ministry will raise an objection to this issue in Hindustan Zinc's annual general meeting.

During Vedanta's quarterly earnings last month, the company had announced that it will transfer its international zinc assets to its subsidiary Hindustan Zinc for $2.98 billion. Based on the current shareholding patter, Vedanta holds 64.92 percent stake in Hindustan Zinc.

The transaction is supposed to unlock value, monetise the international zinc assets and also create substantial synergies for Hindustan Zinc, Vedanta had said in a post-earnings announcement.

Sources also said that Hindustan Zinc went ahead with the exchange filing on this move despite government directors on its board objecting to this $2.98 billion buyout during the company's board meeting as well. The government currently holds 29.5 percent stake in Hindustan Zinc, which it plans on divesting in the current financial year.

The government is of the opinion that Vedanta's decision is against the rights of minority shareholders and also violates corporate governance norms, according to the sources, who further added that any Offer for Sale of Hindustan Zinc is only possible after this matter is resolved.

"If I were a shareholder of Hindustan Zinc, I would feel that the promoter is benefitting at my expense," Deepak Shenoy, founder of Capitalmind told CNBC-TV18. He believes that this is not a great transaction in the realm of corporate governance and had the size been smaller, it would have been much more palatable.

"I am happy the government is objecting, they have 30 percent (stake). Hopefully, they can act in time to protect their own shareholding and the cash that they see in the business. I think beyond that it will be a boardroom battle, perhaps a courtroom battle as well at some point, but I think somebody does need to oppose this transaction," he said.

Reacting to this newsbreak, shares of Vedanta fell to the day's low, declining as much as 2 percent to Rs 305. On the other hand, shares of Hindustan Zinc have recovered from the day's low, currently trading 1.2 percent lower at Rs 344.75.