With sterlite Industries bracing itself to buy out the government’s residual holding in Hindustan Zinc Ltd (HZL), the stage is set for the company’s de-listing from Indian bourses.
After the buyout of government holdings, the promoters’ stake in the company will go up to 94.46 per cent, which is much beyond the minimum threshold level of 90 per cent needed for de-listing a company with a market cap of Rs 29,580 crore or $9.3 billion.
Although a company official said the company is not considering a de-listing, sources said it was imminent since it would help Sterlite Industries attract a better valuation.
The company is going to intimate the government on exercising the call option, effective on April 11, 2007, five years after Sterlite acquired a strategic stake in HZL, another official said. Sterlite currently owns 64.92 per cent stake in HZL, while the government continues to own a 29.54 per cent stake.
Interestingly, de-listing can take place only by an act of the government and not through a reverse book-building process as required under Indian law. As per the share-purchase agreement, Sterlite can exercise the call option to acquire the entire 29.5 per cent from the government or a minimum of 26 per cent if the government divests 3.5 per cent in favour of HZL employees.
After exercising the call option, Sterlite’s stake in the company will increase to between 90.92 per cent and 94.46 per cent. Also, in case the promoters Sterlite Industries decide to de-list HZL they will have to give an open offer under the reverse book-building process under SEBI guidelines with an indicative price band.
“However, irrespective of the fact that whether investors tender their shares or not, the company can be de-listed as the promoters’ holding have already crossed the minimum requirement for de-listing,” said a leading banker.
Based on the current market price of Rs 700 per share, the deal is expected to generate around Rs 8,750 crore, or around $2.2 billion. As per the share-purchase agreement, an independent appraiser will decide the exercise price. The current market price is among the key benchmarks for evaluating the exercise price under the agreement.
In April 2002, Sterlite acquired a 26 per cent stake in Hindustan Zinc from the Government of India for Rs 440 crore and another 20 per cent through an open market offer for Rs 337 crore. Under the shareholders’ agreement, the government had granted Sterlite two call options to acquire all the shares in HZL held by the government. Sterlite exercised the first call option on August 29, 2003 and acquired an additional 18.9 per cent in November 2003 for Rs 323.9 crore.