Both stocks surge after Hind Zinc board approves value unlocking measures

Shares of Hindustan Zinc are trading as much as 6 percent higher after the board authorised the committee of directors to evaluate appropriate corporate restructuring exercise to unlock shareholder value.

The idea is to unlock separate legal entities for undertaking the zinc & lead, silver and recycling business of the company.

Strategic objectives outlined by the board include:

The management will appoint the external advisors to assist in evaluating the options and together will update the way forward to the board of directors.

Shares of Hindustan Zinc are trading 4 percent higher at Rs 309.50

In response shares of Vedanta are trading 7 percent higher on Friday, snapping a seven-day losing streak. This is also the best single-day gain for the stock in 2023.

The stock is also gaining on volumes that are 70 percent higher than its 20-day average at this time of the day.

Vedanta owns a 64.92 percent stake in Hindustan Zinc.

“It is important for the promoters as they have $6.4 billion of debt and they might need to sell some assets. So having separate businesses under separate companies make it easy for them to choose which business to hold on to and which to sell,” Rakesh Arora of GoIndia Advisors told CNBC-TV18 in an interaction.

“For retail shareholders, there is a value unlocking if they are holding onto it because the holding company discount goes away. So reasonable from both angle – from retail shareholders as well as from promoters point of view,” he added.

Any plan from Hindustan Zinc will require approval from the board, which also includes nominees from the Government. Based on the June quarter shareholding pattern, the government holds 29.54 percent stake in Hindustan Zinc.

The transaction was supposed to unlock value, monetise the international zinc assets and also create substantial synergies for Hindustan Zinc. The deal eventually did not materialise.

“Vedanta owns 64.9 percent in Hindustan Zinc and if that share is distributed to Vedanta shareholders, there will be huge value unlock for them. And because Hindustan Zinc marketcap is way ahead of what Vedanta’s is – so from that aspect it is positive. Secondly, government needs to sell. But I don’t think Vedanta has the wherewithal to bid for that stake. So it will have to be sold to retail investors etc. and if the free float goes up in Hindustan Zinc, it becomes much more investable,” GoIndia’s Arora said.