Global credit rating Moody’s Investors Service said that Vedanta Resources’ offer of INR 15,356 crore to buy out the Indian government’s 29.5% stake in Hindustan Zinc and another INR 2,000 crore for purchasing the government’s 49% shareholding in Bharat Aluminium Company if consummated would free up Vedanta’s access to needed liquidity.

The rating agency said that if the price is accepted by the government, the purchase price for HZL which has USD 3.2 billion of liquid funds on its balance sheet will be a windfall for Vedanta. The government’s minority stake restricts Vedanta from using HZL’s cash to support its other companies.

Buying the stakes will free up Vedanta’s access to needed liquidity and the Indian government, keen to pay down a mounting budgetary shortfall, is under pressure to sell. A Vedanta spokesperson when contacted on his mobile phone declined to comment for this article.

Mr Pramod Agarwal joint secretary, department of divestments at Government of India said that “The proposal is still with the mining ministry and is yet to come to the divestment department. Now, Vedanta has offered what amounts to a 10 per cent discount on 20 day moving average of HZL’s recent share price.”

Sterlite Industries bought 64.9% stake in HZL from the Indian government in 2002. Under an option agreement it has had an option since April 2007, to acquire the remainder of the government’s stake at a fair market price but the government has disputed the option and refused to act on it due to disputes over the price at which the option can be exercised.

Mr Alan Greene VP senior credit officer at Moody said that “Before any sale, we expect the Indian government to seek a higher price in order to avoid the deal appearing to be self funded, or a special dividend to extract its 29.5 per cent share of surplus funds. Financing the buyout of the government’s stakes in HZL and BALCO could prove problematic for Vedanta as the group’s consolidated cash position is largely the cash held in HZL. The company will therefore still need bridge financing, which it can repay once it has control of HZL’s cash.”

Source - Mydigitalfc.com

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