Vedanta offers to buy govt stake in group firms

Metal and mining firm Vedanta Resources has offered to buy out the government’s residual minority stake in its group firms Bharat Aluminium Co. Ltd (Balco) and Hindustan Zinc Ltd (HZL), according to an official familiar with the development.

“They have written a letter. They have given us an offer,” the official examining the proposal said on condition of anonymity. “Various proposals have been put up which we have to analyze.”

The official did not give further details and did not disclose the price Vedanta has offered for buying the government’s 49% stake in Balco and 29.5% stake in HZL.

S. K. Roongta, managing director at Vedanta Aluminium Ltd, declined to comment.The government had sold a 51% stake in Balco for Rs.551 crore in 2001 and 64% in Hindustan Zinc (HZL) for over Rs.750 crore in 2003 to Vedanta as part of its disinvestment programme.

A long drawn out arbitration process had prevented Vedanta from acquiring the government’s residual stake in Balco in the past few years.

An arbitration panel in January 2011 allowed the government to sell its residual 49% stake in Balco as it deems fit, striking down Vedanta unit Sterlite Industries’ call option to acquire the balance 49% stake as invalid.

The ministries concerned are discussing Vedanta’s offer but there there was no deadline for a final decision on the matter, the official said.

“The proposals are for both companies, each is valued differently,” the official said. “Balco is not listed but HZL is a slightly different case.”

The acquisition of the residual equity in the two companies is crucial for Vedanta’s overall corporate restructuring programme into a commodity-focused vertical. Vedanta intends to use the cash reserves of Balco and HZL to fund its expansion plans once its buys out the government stake.

“The subsidiaries based in India are restricted from guaranteeing the debts of the UK-based parent,” a report from Moody’s Investor Service in November said.

“The most profitable subsidiary—HZL—is restricted from using its money outside of the HZL operation and a similar arrangement applies at Balco, where the government of India is also a significant shareholder.”

Aluminium is key to growth for the company that has invested heavily in its Orissa refinery and smelter, but has been barred from expansion under environment norms and does not own a captive bauxite mine either.

“We will seek the permission of the ministry of environment and forests for allowing us to expand our refinery,” said Mukesh Kumar, president of Vedanta Aluminium Ltd in Orissa.