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Hindustan Zinc Ltd (HZL) may postpone its reorganisation proposal to create two independent firms for the time being after the government, which has a 29.54% share in the miner, rejected that bid. This month, HZL stated in a letter to the Ministry of Mines that it would not proceed with any demerger plan that the government disapproved of and would consult with the Centre before implementing any such plan.
HZL explained that their letter came in response to the government's rejection of their plan to restructure the recycling business into a subsidiary and establish only two distinct entities—one for zinc/lead and another for silver. This is the second time in just over a year that the government has shot down HZL's proposals. The last one concerned the miner's acquisition of parent Vedanta's global zinc assets in a $2.98-billion cash deal.
In a September 29, 2023 meeting, HZL's board asked the company to explore a corporate restructuring to create three separate legal entities for the zinc, lead, silver, and recycling businesses to unlock shareholder value. In signs of discomfort with the plan, the Centre wrote to HZL in October 2023, making it clear that, as per rules, the approval of the government- the most important minority shareholder- would be required for any such business reorganisation. Subsequently, HZL presented the government with the plan to create only two separate entities, said the people quoted earlier.
While rejecting this plan, the government cited the integrated nature of HZL's business and argued that segregation would only complicate the operations without adding value for the company's shareholders, said sources. Also, the government doesn't want any uncertainty around HZL to spook investors ahead of its plan to offload a part of its stake in the miner through an offer for sale in FY25, it added.
Interestingly, HZL's parent company, Vedanta, also announced last year its plans for a broad overhaul that would create separately listed entities for aluminium, oil and gas, iron ore, and steel. HZL shares on the BSE inched up 0.77% on Thursday to ₹ 294 apiece, in sync with a 0.75% rally in the broader Sensex. However, the share is trading way below its 52-week high of ₹344.
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