Vedanta raises Balco, HZL offer; may delist

After eight months of fruitless meetings and representations, the London-listed and India-focussed mining major Vedanta Resources Plc has sweetened its offer to buy residual stakes in Hindustan Zinc and Balco from the government by a combined 20%.

The company, in a communication to shareholders, said it is ready to shell out 15% more to buy the 29.5% stake of the government in Hindustan Zinc from the earlier offered price. That pegs the buyout cost at $3.37 billion, up from $2.94 billion offered to the government in 2009.

For Balco, the offer has been increased to $550 million,  from $338 million, to buy out the government’s 49% stake.

The total offer, thus, is for $3.9 billion  ($3.28 billion earlier) or Rs21,600 crore.

Vedanta will be holding a general meeting of the shareholders on August 28, right after its annual general meeting, to seek shareholders’ approval for this.

The deal will help the company consolidate the operating profit of the two entities into the group and thereby increase shareholder value.

The government gains about $2 billion.

A deal would increase the group’s stake in Hindustan Zinc to 94.4% and Balco to 100%, and Vedanta’s economic interests to 55% and 58.3%, respectively, said the company in the statement.

Vedanta would rather delist the firms than offload stake to fall in line with Sebi norms, experts aver.

Last fiscal, Hindustan Zinc contributed 31.6% and Balco contributed 3% to the overall operating profit of the group.

An analyst with a domestic brokerage said it makes sense for Vedanta to get control of the companies. The commodities market is currently in a downturn and since both Hindustan Zinc and Balco are strong companies now, even a premium is justified, he said.

In January, Vedanta offered to buy out the government stakes in the two companies at a valuation of $3,276 million. However, the government did not agree and wanted to sell off the assets at the then market price, which were higher.