India’s government may put a plan to sell part of its stake in Hindustan Zinc (HZL) on hold unless the company cancels its nearly $3 billion cash purchase of two Vedanta Group subsidiaries, a senior government source said.
The government is the largest minority shareholder in HZL with a 29.54% stake in the company, while Vedanta owns 64.9%.
The government had planned to sell part of it in the 2022/23 fiscal year that ends March 31, which would help it meet its layoff target of 500 billion rupees ($6.10 billion) for the year.
In January, HZL’s board approved the purchase of Vedanta Group’s zinc businesses for $2.98 billion. “Investors need certainty about the deal and until it is finally reached, the government may not go ahead with the planned sale offer,” said the source, speaking on condition of anonymity.
An out-of-hours email to a Treasury spokesman was not immediately returned.
The government has raised just 311 billion rupees from the sale of shares in public sector companies so far in 2022/23 and delaying the HZL stake sale could see it miss its divestment target.
To underscore its opposition to the deal, the government wrote a letter to the Securities and Exchange Board of India saying that despite being the largest minority shareholder in the company, it was “kept in the dark” about the related party transaction.
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In a separate letter to HZL, a copy of which was sent to stock exchanges, the government threatened legal action if the company went ahead with the all-cash deal.
The proposed deal between HZL and Vedanta also spooked investors, leading to a drop in HZL’s share price. From a 2023 high of 383 rupees, the stock fell about 20% to 304.4 rupees as of Friday.