Published: 15th Nov 2024
By: Value Research
The government’s divestment in Hindustan Zinc has begun with the recent offer-for-sale (OFS), signalling a potential full exit might eventually happen. But this could spell trouble for investors. Check why in the next slides:
After years of delays, the government, holding 30% in Hindustan Zinc, is offloading 2.5% for Rs 5,900 crore through the OFS. With Hindustan Zinc’s stock up 73% this year, it’s an opportune moment for the government to cash in.
Vedanta, the majority shareholder, has long wanted the government out, citing its interference. The OFS suggests the government may finally be loosening its grip, which Vedanta would welcome—but at a cost to investors.
A full government exit, if it happens, means Vedanta could gain unchecked control over Hindustan Zinc. With no counterforce, it could increase cash extractions via hefty dividends, to pass on to the UK-parent Vedanta Resources to help ease its debt load.
Hind Zinc has rewarded shareholders with over 100% dividend payout in the last 10 years. However, recently, the dividends (sourced by Vedanta) has outpaced its cash flow, piling on debt and stalling investments in new assets.
In the past, the government blocked several of Vedanta’s proposals meant for sourcing cash from Hind Zinc, including plans to buy assets from Vedanta at inflated prices or increase cash withdrawals.
Without the government’s oversight, Hind Zinc could face increased cash outflows. This raises red flags for minority investors. Check Hind Zinc’s dividend drain and how it is impacting its growth and cash flows from our story. Visit the link below.
Other Webstories
To find more such stories & Web-stories, visit our website