Attorney General clears Hindustan Zinc stake sale via auction
New Delhi: The Attorney General has cleared the way for government to offload its residual stake in Hindustan Zinc Ltd through auction, saying it is no longer a public sector company, according to official sources.
Government's 29.5 percent stake in HZL is worth Rs 16,000 crore at current market valuation. The value is expected to be higher in the auction as HZL is sitting on cash reserves of Rs 23,632 crore and is the most profitable firm in the Vedanta Group stable.
"Hindustan Zinc has ceased to be a Government company for almost a decade. One way could be to sell the shares in the open market," if the market price is considered to be "fair", G E Vahanvati has said in his communication to Law Ministry.
The move will be a policy decision which needs to be taken after considering all the facts and circumstances, he said.
AG's opinion was sought as the government is keen to clear stake sales in PSUs as well as in erstwhile PSUs where it has residual stakes, to meet this year's disinvestment target of over Rs 55,000 crore by March-end and contain fiscal deficit at 4.8 percent of the GDP.
Prime Minister Manmohan Singh had also directed to take AG's opinion, in a high level meeting held on December 3, for selling stake in HZL amid controversies like CBI filing a preliminary inquiry on its divestment of 2002-2003.
Vahanvati has said that CBI's inquiry is on the original disinvestment of HZL, which has now become "fait accompli".
The Mines Ministry is now expected to move final note to the Cabinet Committee on Economic Affairs for selling the remaining 29.5 per cent stake in HZL through the auction route, the sources said.
Last week, the Cabinet had decided not to wind up Specified Undertaking of UTI (SUUTI) for the time being, paving the way for sale of its holdings in three private firms -- ITC, L&T and Axis Bank worth over Rs 35,000 crore.
The Law Ministry had also given go-ahead last week to sell remaining 49 percent in aluminium producer Balco through the auction route. Moreover, Coal India today declared special dividend of over Rs 18,317 crore, of which Rs 16,485 crore would be going to the government for its 90 percent stake.
On stake sales in HZL and Balco, Economic Affairs Secretary Arvind Mayaram had said last week that he sees no legal bar in selling stakes as they are private firms.
"The legal position is that it is a private company. It is no longer a government company... Therefore, we are very confident that divestments will happen before March 31," he had said, adding that the Vedanta Group, the owner of HZL and Balco, would have to bid like any other bidder.
The government had sold its 64.92 percent stake to mining conglomerate Vedanta group during 2002-2003.
Earlier, the Mines Ministry - parent ministry of HZL - was of the opinion for taking Parliament nod before going ahead with the stake sale, citing a Supreme Court judgment of 2003 in HPCL-BPCL divestment case.
It had also circulated a draft Cabinet Note as HZL was incorporated after the erstwhile Metal Corporation of India was nationalised through Metal Corporation (Nationalisation and Miscellaneous Provisions) Act, 1976.
However, the Finance Ministry had a contrasting opinion that stake sale in HZL through the auction route does not have any issues as the zinc producer has ceased to be a PSU.
"The issue will now be settled and the Mines Ministry will move a final note to the CCEA for selling stake through the auction," said a source.
Vedanta group, the owner of HZL and Balco, has been in talks with the government for long to acquire the remaining stakes. According to it, selling remaining stake in both the firms is a mere "housekeeping" work for the government.
The mining conglomerate last year had taken shareholders' nod for making offers of up to Rs 24,663 crore for both the firms. For HZL, the upper cap is Rs 21,637 crore and for Balco, it is Rs 3,026 crore.
If Vedanta makes the offer at that level (Rs 21,637 crore) for Hindustan Zinc, it would be a bonanza for the government as it would amount to meeting over 39 per cent of the Rs 55,000 crore disinvestment target for the current fiscal.
It will be over 144 percent of targeted Rs 15,000 crore from residual stake sales.