Govt Rejects Vedanta HZL Demerger Proposal

The government of India has rejected Vedanta’s proposal to demerge its subsidiary Hindustan Zinc Limited (HZL) into three separate entities, citing national security and public interest concerns. The decision comes as a setback for Vedanta, which had announced its plan to demerge its diversified businesses into six listed companies in September 2023, aiming to unlock value and attract investment.

HZL is India’s largest producer of zinc, lead and silver, and also operates a recycling business. Vedanta had proposed to create separate legal entities for each of these businesses, and distribute shares of the new companies to the existing shareholders of HZL. Vedanta owns 64.92% stake in HZL, while the government holds 29.54%. The remaining 5.54% is held by public shareholders.

However, the government has rejected the proposal, stating that it would compromise the strategic interests of the country and affect the availability of critical minerals for domestic industries. The government also said that the demerger would reduce its control and influence over HZL, which is a profit-making public sector undertaking (PSU). The government argued that HZL should remain as a single integrated entity, and any restructuring should be done only after obtaining its prior approval.

Vedanta has expressed its disappointment over the government’s decision, and said that it would explore all legal options to pursue its demerger plan. Vedanta said that the demerger would benefit all stakeholders, including the government, by creating world-class sector leading companies with enhanced growth potential and value creation. Vedanta also said that the demerger would not affect the security or supply of minerals in the country, as HZL would continue to operate under the same regulatory framework and obligations.

The demerger of HZL was a key component of Vedanta’s overall restructuring plan, which aimed to create six separate listed entities for its aluminium, oil and gas, power, steel and ferrous materials, base metals and holding company businesses. Vedanta had claimed that the demerger would simplify its corporate structure, improve operational efficiency, attract niche investors and enable better capital allocation for each vertical.

According to Vedanta’s announcement, HZL had produced 1.1 million tonnes of zinc-lead metal in FY 2021-22, up by 6% from the previous year. It had also produced 706 tonnes of silver, up by 11% from the previous year. HZL had planned to ramp up its zinc production to 1.5 million tonnes by FY 2023-24, and become one of the top five global silver producers by FY 2024-25. HZL had also initiated a recycling business in FY 2019-20, with a capacity of 100 tonnes per day. HZL had reported a revenue of Rs 23,569 crore and a profit after tax of Rs 7,980 crore in FY 2021-22.

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