Hindustan Zinc OFS: Vedanta’s Strategic Move to Raise Funds
Vedanta Ltd., the mining conglomerate led by Anil Agarwal, has made a significant financial move by deciding to sell a substantial portion of its holdings in its subsidiary, Hindustan Zinc Ltd., through an Offer for Sale (OFS). This decision comes shortly after Vedanta utilized ₹8,500 crore raised through a Qualified Institutional Placement (QIP) to release some of the pledged shares of Hindustan Zinc Ltd. The strategic sale is expected to generate considerable funds for the company, aiding in its debt repayment and other financial obligations.
Details of the Hindustan Zinc OFS
Vedanta Ltd. has announced its intention to sell 13.37 crore shares of Hindustan-Zinc Ltd., representing 3.17% of the company’s total equity, through the Hindustan-Zinc OFS. This announcement follows an earlier statement made by Vedanta that it would sell up to 11 crore shares, or 2.6% of Hindustan-Zinc’s equity, through the OFS route. The decision to increase the share sale to 13.37 crore shares indicates Vedanta’s focus on raising substantial funds to meet its financial needs.
According to the exchange filing, the floor price for the Hindustan Zinc OFS has been set at ₹486 per share. This price represents a 15% discount to Hindustan-Zinc’s closing price on Wednesday, making it an attractive opportunity for investors. If the 13.37 crore shares are sold at the floor price, Vedanta is expected to raise approximately ₹6,500 crore through this sale.
The Hindustan Zinc OFS is scheduled to open on August 16 and will close on August 19. Non-retail investors will have the opportunity to participate in the OFS starting August 16, while retail investors can participate beginning August 19. The base size for the OFS is set at 5.14 crore shares, which accounts for 1.22% of Hindustan Zinc’s total equity. Additionally, there is an option to sell an additional 8.23 crore shares, equating to 1.95% of the total equity, providing Vedanta with flexibility in the sale process.
Impact of the Hindustan Zinc OFS on Stakeholders
The Hindustan Zinc OFS is expected to have a significant impact on the company’s shareholding structure and free float. Currently, Hindustan Zinc’s free float stands at just 2.5%, a relatively low figure. However, once Vedanta offloads the shares through the OFS, the free float is expected to more than double, reaching nearly 6%. This increase in free float is likely to enhance the liquidity of Hindustan Zinc’s shares in the market, making it more attractive to a broader range of investors.
Vedanta currently holds a 64.92% stake in Hindustan-Zinc as of the end of the June quarter. The sale of 13.37 crore shares will slightly reduce Vedanta’s stake but will still leave it as the majority shareholder in the company. Apart from Vedanta’s stake, Hindustan Zinc is owned 29.54% by the government, 2.76% by the Life Insurance Corporation of India (LIC), and only 0.06% by India’s mutual funds. Small shareholders, those with authorized share capital of less than ₹2 lakh, own just 1.51% of Hindustan Zinc. As of the June quarter, there are 4.33 lakh such small shareholders in the company.
The funds raised through the Hindustan Zinc OFS are expected to be used strategically by Vedanta. According to a note by brokerage firm PhillipCapital, the money raised from the OFS is likely to be utilized partly for debt repayment in India and partly distributed as dividends to the parent company, Vedanta Resources. This will help Vedanta Resources meet its repayment obligations, which include outstanding debt obligations amounting to $1.2 billion and $1 billion, respectively, for the financial year 2025.
In a separate exchange filing, Hindustan Zinc disclosed that its board will consider a second interim dividend at its meeting on August 20. This potential dividend declaration comes as a positive signal to investors, indicating the company’s commitment to returning value to its shareholders despite the ongoing share sale.
Market Response and Future Outlook
The market has shown a cautious response to the announcement of the Hindustan Zinc OFS. On Wednesday, shares of Hindustan Zinc closed 0.7% lower at ₹576, while Vedanta’s shares ended 0.6% lower at ₹420. The decline in share prices suggests that investors are adopting a wait-and-see approach as they assess the impact of the OFS on the company’s valuation and future prospects.
However, the increase in free float and the potential for greater liquidity in Hindustan Zinc’s shares could attract more investors in the long term. Additionally, the funds raised through the OFS will provide Vedanta with the necessary capital to manage its debt and continue its operations without financial strain.
In conclusion, the Hindustan Zinc OFS represents a strategic move by Vedanta Ltd. to raise substantial funds through the sale of its subsidiary’s shares. The decision to sell 13.37 crore shares at a 15% discount to the market price is expected to generate ₹6,500 crore, which will be used for debt repayment and other financial obligations. As the OFS process unfolds, the impact on Hindustan Zinc’s shareholding structure, free float, and market performance will be closely watched by investors and market analysts alike.
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