Vedanta to sell 2.6% equity in Hindustan Zinc via OFS; stocks fall up to 6%

Shares of Vedanta and its subsidiary Hindustan Zinc (HZL) tumbled as much as 6% in intraday trade on Wednesday after Anil Agarwal-led metal and mining firm announced to offload 2.6% equity stake in HZL via offer for sale. As per the latest shareholding data available on the exchanges, the government owned a 29.54% stake in HZL while Vedanta held 64.92% shares in the company. Anil Agarwal-led Vedanta has pledged nearly all its shareholding in HZL as collateral for loans taken by the company or the group.

Reacting to the news, Vedanta shares declined as much as 4.1% to ₹405.30 on the BSE, while the stock price of Hindustan Zinc dropped 6.2% to hit an intraday low of ₹544.15.

Early today, shares of Vedanta opened marginally higher at ₹425.35 against the previous closing price of ₹422.70 on the BSE. Extending opening gains, the mining heavyweight gained 1.4% to hit a day’s high of ₹428.5, before slipped to ₹405.30 levels. The largecap stock has fallen 5.4% from the day’s high level. At the time of reporting, the market capitalisation stood at ₹1.6 lakh crore.

On the other hand, Hindustan Zinc shares belled the day at ₹569.95, down 1.8% against Tuesday’s closing price of ₹580.55 on the BSE. The stock fell over 6% during the session so far, with the market capitalisation slipping to ₹2.39 lakh crore.  

In a post-market hour on Tuesday, Vedanta said that it will sell up to 11 crore equity shares of Hindustan Zinc, representing 2.60% of the issued and paid-up equity share capital of HZL, by way of an offer for sale.

“The duly authorised Committee of Directors of Vedanta Limited, at its meeting held today on August 13, 2024, has approved the sale of upto 11,00,00,000 equity shares of Hindustan Zinc, representing 2.60% of the issued and paid-up equity share capital of HZL, by way of an offer for sale through the stock exchange mechanism, in accordance with applicable laws and the circulars issued by the Securities and Exchange Board of India and the stock exchanges,” it said in a  BSE filing.

The stake sale announcement came amid looming debt obligations of the London stock exchange-listed Vedanta Resources’ Limited (VRL), the parent of Mumbai-based Vedanta. The VRL’s annual debt maturities and interest obligation remain substantial for fiscals 2025 and 2026, which will require refinancing. While VRL has refinanced most of its near-term debt maturities ($3.2 billion) through the liability management exercise, the company still has significant external debt maturities ($900 million per annum) over the next two fiscals. So, its dependence on refinancing or higher dividend payout through operating cash accrual and brand and management fees by Vedanta is likely to remain high.

Hindustan Zinc has a strong track record of paying hefty dividends to its shareholders. Last fiscal, the company paid ₹23 dividend for the full year, while it declared 42 dividends since June 28, 2001. In May this year, the company announced the interim dividend of ₹10 per equity share i.e. 500% on the face value of ₹2 apiece for the financial year 2024-25, amounting to ₹4,225.32 crore.

Earlier this month, Sandeep Modi, CFO of Hindustan Zinc, in Q1 FY25 earnings conference call said that the company paid ₹4,225 crore as dividend during the April-June period of 2024. “As a key highlight of the quarter, Hindustan Zinc delivered the highest shareholder returns among the major Indian companies, reinforcing the trust among the investor community.”

During the period, the total return per share in form of capital appreciation stood at ₹377. Considering a dividend of ₹10 per share, the shareholder returned total to ₹387 per share. With a whopping 133% return on the closing price of the previous fiscal year, the Company's returns were incomparable with 18X returns as compared to Nifty 50 and 7X returns as compared to Nifty Metal indices,” Modi said during the conference call.

As per media report, HZL is also mulling to declare a special dividend amounting to ₹6,000 crore this month. However, the company has clarified to exchanges that it is “unable to comment on media speculation or rumors”. “It may be noted that any such kind of decision is under the power of the Board of Directors (‘Board’) of the Company and the Company has not yet submitted any such proposal to the Board,” it said in a BSE filing on August 12, 2024. 

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