Govt’s selloff plan may hit Vedanta

In what may come as a setback for Vedanta Group, the government is considering offloading its stake in Balco and Hindustan Zinc (HZL) in the stock market instead of selling the shares to metals tycoon Anil Agarwal. The discussion comes at a time when the Centre is keen to sell shares in companies such as HZL and Balco, where the government disinvested its stake during the NDA regime, and monetize value from other assets in a bid to raise resources to bridge the widening fiscal gap.

Sources privy to the discussions said that talks have been held at the highest level in the government and one view was that sale of shares in the market will not only help the government realize better value but also avoid controversy, especially related to pricing.

In 2001, the government had sold a 51% stake in Balco to Sterlite Industries, leaving it with 49% holding. It holds a tad less than 30% in Hindustan Zinc, while Sterlite has close to 65% stake. The share sale has been held up for several years as UPA-1 cited provisions of the Companies Act to deny the share sale. In both cases, the shareholders’ agreement provided for the acquirer to exercise a call option or gave Agarwal’s outfits the right to buy the shares after a specified period. But UPA-1 decided against selling shares in every company where call options were provided for but has now woken up to selling residual stake as it faces an acute cash crunch.

Coupled with its inability to cut down on wasteful expenditure, it has already missed the fiscal deficit target of 5.1% of GDP and stares at the prospect of a sovereign ratings downgrade, which will put Indian securities in junk grade and hamper investment into the country. As a result, it is pursuing an aggressive disinvestment programme with a target to mop up Rs 30,000 crore by selling stakes in several public sector companies such as NMDC, Oil India and NTPC through the public offer and auction route.

Sources said an offer for sale or auction of HZL shares was one of the options that was being pursued.

UNLOCKING VALUE

• Centre is keen to monetize its assets to the maximum extent in a bid to bridge the widening fiscal gap

• At present, govt has a 49% stake in Balco (it sold 51% to Sterlite), while it holds a little less than 30% in Hindustan Zinc

• A view in the corridors of power is that a market sale will raise more money than selling to metals tycoon Anil Agarwal

• Such a move is also expected to avoid any controversy, especially with regards to pricing

Govt may go for strategic sale in IFCI