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PRESS NOTE ON HINDUSTAN ZINC LTD. (HZL)
Government of India has decided to disinvest 26%
equity in Hindustan Zinc Limited in favour of Sterlite Opportunities and
Ventures Limited, a Special Purpose Vehicle promoted by Sterlite Industries (India)
Limited and Sterlite Optical Technologies Limited, at a price of Rs.445
crore (amounting to Rs.40.50 per share).
This means a P/E (price/earning) ratio of
about 21. The average dividend
paid by the Company, calculated for 26% equity, over the last eight years till 2000, has been of the order of Rs.3.50 crore per year. Details of P/E ratios for strategic sale of
other companies are given in the Annexure.
BNP Paribas served as the Advisor and M/s Amarchand
Mangaldas & A Shroff and Company served as the Legal Advisor to the
transaction.
HZL was incorporated in January, 1966 as a Public
Sector Company after the takeover of the erstwhile Metal Corporation of India
Limited. Its paid up capital is Rs.422.53
crore out of which Government of India holds 75.92% while Financial
Institutions, other Corporate Bodies (including NRIs) and Indian nationals hold
the balance equity. It is a profit
making and listed company and its shares are traded at the Stock Exchanges of
Mumbai, Delhi and Jaipur. There has
been a spurt in its share prices, especially after the successful disinvestment
of VSNL, IBP etc. The weighted average
price of shares over the last six months is about Rs.25.30 and the
average weekly high and low of closing price for last six months is over Rs.22
per share.
The decision to disinvest 26% equity through
strategic sale was taken on 29.8.2000.
Following due process, price bids were invited from all the Qualified
Interested Parties, to be received on 8.11.2001. Only one QIP submitted the
price bid which was rejected since it was lower than the reserve price
fixed.
In pursuance of
Government directions, a renewed
exercise was undertaken involving
the original QIPs
who had completed
their due diligence as
well as the
Advisors/Legal Advisors to
ensure how the
value depleters in the transaction
documents
and bidding conditions be modified to enhance the potential value of the
company in order to make it more attractive to the bidders. M/s URS Corporation
was appointed to conduct environmental, health and safety due diligence review
of the company. Amongst the
modifications made in the transaction documents are the sequencing of call and
put options and their pricing, the provision to have the Chairman nominated by
the Strategic Partner once it acquires 51% stake, unlimited environmental
indemnity for a period of three years and a clear road map for the Government
to exit from the company. Besides, sale
price has been de-linked from Public offer price under the SEBI Takeover
Code. Meanwhile, on 28.2.2002 it was
announced that the customs duty will be reduced from 35% to 25%, which is
likely to impact on the profitability of the company.
Finally, price bids were invited from all the five
Qualified Interested Parties (Glencore International, Binani Industries,
Indo-Gulf Corporation, Sterlite and Metdist).
Two financial bids were received from M/s Indo Gulf
Corporation and M/s Sterlite Opportunities and Ventures Limited. The reserve
price fixed was Rs.32.15 per share (Rs.353.17 crore for 26% stake). Both the price bids received were above the
reserve price. The higher bid, that of
M/s Sterlite Opportunities and Ventures Limited, for Rs.445 crore
(translating to about Rs.40.50 per share) was accepted. The price offered by M/s Sterlite
Opportunities & Ventures Limited is substantially higher than the offer
made by Sterlite Industries in November, 2001.
The transaction was closed on 11.04.2002. An attractive ESOP scheme was offered to the employees and full-time functional directors of the Company. 1.46% shares were sold to employees @ Rs. 10/- per share in Dec. 2002.
As
part of thr "Call Option' available to the Strategic Partner, Government
parted with another 18-92% for Rs. 323.88 crore @ Rs. 40.50 per share in
November, 2003.
******
Annexure
P.E.
RATIOS
Sale of Shares Strategic
Disinvestment
1991-99 2000-2002
1. IOC = 4.9 1. BALCO = 19
2. BPCL = 5.7 2. CMC = 12
3. HPCL = 5.9 3. HTL = 37
4. GAIL = 4.4 4. MFIL = very
high *
5. VSNL
= 6.0 5. LJMC =
- do -
(in monopoly days)
6. PPL
= - do-
7. JESSOP = - do-
8. IBP = 63
9. VSNL = 11 **
10. HZL = 21
* as earning per share was negative
** inclusive of income from dividend etc.
(after the end of monopoly)