The Indian government is reportedly contemplating a delay in its plans to sell its stake in Hindustan Zinc (HZNC.NS) due to the current state of the industry. Merchant bankers have advised against proceeding with the sale at present, citing a lack of interest from institutional investors in the metals sector. Despite this, the government remains hopeful of completing the long-awaited sale within the current financial year.

Industry Challenges Lead to Postponement:

Hindustan Zinc’s stock price has witnessed a decline of over 16% since its peak in January, primarily attributed to a significant drop in zinc prices and complications arising from Vedanta Group‘s attempt to sell two units to the mining company. In light of these challenges, the government is opting to wait for the share price to recover before proceeding with the sale, according to an anonymous official source.

Merchant Bankers’ Advice:

The advice to postpone the stake sale came following road shows conducted in June, during which merchant bankers expressed reservations about the current market conditions. They indicated that institutional investors were not enthusiastic about investing in the metals sector at this time. As a result, the government is considering delaying the sale until a turnaround in the industry’s fortunes.

Government’s Stake Sale Plans:

The Indian government plans to divest its stake in Hindustan Zinc in tranches, commencing with the sale of approximately 5% of its stake. Currently, the Vedanta Group holds a majority stake of 64.9% in the company. Although the government aims to complete the stake sale within the current financial year, the final decision is contingent on market conditions and the recovery of Hindustan Zinc’s share price.

Global Market Challenges:

The decline in international zinc prices over the past six months, down by 30%, can be attributed to global macroeconomic uncertainties and sluggish demand recovery in China, as stated by rating agency ICRA. Additionally, ICRA predicts muted growth in global consumption for aluminum, copper, and zinc throughout the year. These factors further contribute to the cautious approach being adopted by institutional investors, as observed during the roadshows conducted in December.

Legal Developments and Government’s Prior Attempts:

In a recent development, the country’s top court dismissed Vedanta’s plea to compel the government to divest its stake in Hindustan Zinc. The government had initially planned to sell about 5% of its stake in the previous financial year but postponed the move due to declining prices and complications arising from Vedanta’s proposed sale of its zinc subsidiaries. The government opposed this deal, which ultimately lapsed a few months later. Even during the roadshows conducted in December, institutional investors expressed their reluctance to acquire significant stakes in Hindustan Zinc, as highlighted by another official source.

Conclusion:

The Indian government is considering a postponement of its stake sale in Hindustan Zinc in response to industry challenges and advice from merchant bankers. The decline in zinc prices and the lack of interest from institutional investors in the metals sector have influenced this decision. While the government still hopes to complete the sale within the current financial year, it is contingent on market conditions and the recovery of Hindustan Zinc’s share price.