Government Hindustan Zinc Stake Sale Generates Strong Investor Interes

Government to Exercise Greenshoe Option After OFS Oversubscription

The Indian government's move to divest a portion of its stake in Hindustan Zinc Limited (HZL) has been met with a robust response from institutional investors. The offer for sale (OFS), which opened on November 6, 2024, saw institutional investors bid for over 6.69 crore shares, exceeding the 4.75 crore shares on offer by 1.41 times. This enthusiastic response has prompted the government to exercise the greenshoe option, potentially increasing the total stake sale to 2.5%.

The government, holding a 29.54% stake in HZL, is the largest minority shareholder in the Vedanta Group firm. The OFS aims to offload 1.25% of the government's stake, equivalent to over 5.28 crore shares, with the greenshoe option allowing for the sale of an additional 1.25%. The floor price for the OFS was set at Rs 505 per share, representing a near 10% discount to the closing price of Rs 559.75 on November 5, 2024.

The strong investor interest is expected to generate over Rs 5,000 crore for the exchequer, significantly boosting the government's disinvestment proceeds for the current fiscal year, which currently stand at Rs 5,176 crore.

The OFS was structured in two phases:

• November 6, 2024 (T day): Open to non-retail investors who could also choose to carry forward unallocated bids to the next day (T+1).
• November 7, 2024 (T+1): Open to retail investors and employees. Non-retail investors who carried forward their bids could also revise them.

The successful OFS comes on the heels of HZL reporting a strong performance in the second quarter of FY25, with:

• A 35% year-on-year jump in consolidated net profit to Rs 2,327 crore.
• A 21% year-on-year increase in revenue from operations to Rs 8,004 crore.
• A 2% year-on-year increase in mined metal production to 256 kt.
• An 8% year-on-year increase in refined metal production to 262 kt.

Analysts have attributed this strong performance to factors such as:

• Higher metal and silver volumes.
• Improved zinc and silver prices.
• A strong US dollar.
• Lower cost of production due to operational efficiencies and softer input commodity prices.

Despite the positive financial results, the announcement of the OFS led to a decline in HZL's share price. On November 6, 2024, the shares opened at Rs 520.85 on the BSE, nearly 7% lower than the previous closing price. The share price further dipped to Rs 515.90, representing a decline of over 7.5% against its last close. By the end of the day, the shares settled at Rs 513.15 apiece on the BSE, an 8.28% decrease.

The government's decision to divest a portion of its stake in HZL is part of a broader disinvestment strategy aimed at generating resources for public spending and reducing its presence in non-strategic sectors. The successful OFS, marked by strong investor participation, underscores the confidence in HZL's future prospects.

Disclaimer: This news article is for informational purposes only and does not constitute financial advice. Readers are advised to consult with a qualified financial advisor before making any investment decisions.