Government starts process for Hindustan Zinc and Balco stake sale

The government has started the process to sell its remaining stakes in the two metals companies Hindustan Zinc and Balco, which could fetch it as much as Rs 18,000 crore.

The cabinet committee on economic affairs (CCEA) is expected to take up a proposal this week for change in regulations governing "call and put" options, which is crucial for divestment in these companies.

Next week, the CCEA is likely to clear stake sale in the two companies via an offer for sale or competitive bidding. "A cabinet note has been already circulated for change in the call and put norms and is expected to be taken up in the coming week. The CCEA will subsequently take up the proposal for stake sale in HZL and Balco," said a senior finance ministry official.

The government has budgeted Rs 55,000 crore from stake sale this year, Rs 40,000 crore from regular disinvestment and Rs 15,000 crore from residual stake sale in some companies. The government holds a 29.5% in listed Hindustan Zinc, which is worth over Rs 14,000 crore at current prices. The sale will lead to immediate flow of foreign capital that the government needs to finance its current account deficit pegged at $70 billion.

Anil Agarwal-headed Vedanta owns 64.92 % in the company through Sterlite Opportunities & Ventures Ltd.

Government holds 49% in aluminium company Balco, in which majority is again held by the Vedanta group. Vedanta had offered Rs 17,000 crore to buy out the government, but the government is keen to sell its residual stake through auction route hoping to get a better price in a transparent manner. Vedanta will also have an option to bid in the auction.

The note to the CCEA will include the law ministry and attorney general opinion based on the old companies act, the changes in the new companies act and changes in the call and put norms as part of the stake proposal.

The attorney general has already given his go ahead to the stake sale.

A call option allows a holder to buy shares in an entity at an agreed price while put options allows an investor to sell stakes.

Changes in call and put options norms lie at the core of the sale of residual government stake in HZL and Balco.