Hindustan Zinc Ltd. (HZL)- Proposed acquisition of overseas zinc companies in Namibia and S. Africa is questionable

Hindustan Zinc Ltd


Shri Rajiv Gauba

Cabinet Secretary

Dear Shri Gauba,

For the last several years, I have been questioning the Union Mines Ministry’s proposal to disinvest government’s residual equity share of 29.58% in Hindustan Zinc Ltd (HZL), keeping in view that zinc is a critical mineral on which public ownership and control would be necessary and also keeping in view the manner in which HZL unit at Visakhapatnam and its units elsewhere have been managed, since HZL came under control of the Vedanta Group.

In particular, I had expressed my serious concerns, vide my letters dated 20-1-2023 and 1-2-2023, when HZL’s majority shareholder, the Vedanta Group, made a disclosure on 19-1-2023 to the national stock exchanges, as required under SEBI’s listing regulations, that HZL’s Board of Directors, at their meeting held on the same day, resolved as follows:

“Purchase/Subscribe to the equity shares of THL Zinc Ltd, Mauritius which comprises of shares held in Black Mountain Mining Pty Ltd, South Africa (69.6%) and THL Zinc Namibia Holdings (Pty) Ltd (100%), Namibia (“Zinc Assets”), by Hindustan Zinc Limited (“HZL or the Company”) through its wholly owned subsidiary (“HZL WOS”), for a cash consideration not exceeding USD 2,981 million (in a phased manner basis agreed milestones) under an efficient structure, such that, eventually, THL Zinc Ltd will become a wholly owned subsidiary of the Company through HZL WOS to be incorporated, by entering into contracts/definitive documents with THL Zinc Ventures Ltd (“Proposed Transaction”)”

As of now, the Union Ministry of Mines has three of its nominees as directors on HZL’s Board and, if the above disclosure was based on a resolution duly approved by them, it would imply that the decision had prior approval from the Ministry itself.

HZL’s decision to acquire Vedanta’s overseas zinc assets raises the following concerns:

  1. Why should the Mines Ministry agree to HZL acquiring a Mauritius-based intermediary company in which Vedanta has a beneficial interest, especially knowing well that the company is beyond the regulatory reach of SEBI and other statutory agencies in India?
  2. Considering that the government still has a 29.58% share in HZL’s equity and therefore a significant stake in it, the Mines Ministry is expected to exercise due diligence, before taking any decision, on the status of the Mauritius-based THL and the extent of extractable zinc reserves which are there covered by mining leases granted to the Vedanta Group in S.Africa and Namibia. Has the Ministry made any such evaluation?
  3. Is the Ministry aware of the multiple related party transactions associated with the Mauritius-based THL and its financial liabilities?
  4. Has the Ministry evaluated the financial impact on the intrinsic value of HZL, if USD 2.981 billion from out of its resources are to be spent on acquisition of ownership of THL? Does this transaction add to HZL’s value, or reduce it?
  5. Does this transaction prejudice the Ministry’s proposal to sell away the government’s residual equity share to private parties? Or, does it indirectly tilt the level playing ground in favour of Vedanta in the bidding process?

There have been reports that acquisition by HZL of THL Zinc Ltd, Mauritius was a costly deal for HZL but advantageous from the point of view of Vedanta (https://www.bloomberg.com/news/articles/2023-01-19/vedanta-to-sell-overseas-zinc-business-to-india-unit-for-2-98-billion), a fact that should cause concern for the Ministry.

Against this background, either in response to my letters or otherwise, the Ministry of Mines seems to have woken up and belatedly expressed its objection to Vedanta’s disclosure of the so-called Board decision to the stock exchanges, on the ground that the said decision had no prior approval of the Ministry’s nominees (https://www.cnbctv18.com/business/companies/hindustan-zinc-vedanta-assets-buyout-government-objection-minority-shareholders-15864341.htm). If this is factually correct, it is a matter of far more serious concern, as Vedanta had ignore the Mines Ministry’s view, by proceeding unilaterally. This calls for an independent enquiry and appropriate action against Vedanta under the Companies Act and other relevant laws.

The track record of the present government vis-a-vis the Vedanta Group is such that one is constrained to apprehend a somewhat over-conciliatory approach on the part of the government towards that Group.

For example, the government went to the extraordinary extent of retrospectively amending the Foreign Contributions (Regulation) Act, 1976 (FCRA), which effectively condoned illegal donations given by foreign companies including the Vedanta Group to BJP and other political parties, though the court decisions confirmed such donations to be illegal. Earlier, in 2013, some companies belonging to the group, along with other mining companies, were reported to be involved in illegal iron ore mining in Goa. No effective action seems to have been taken by the present government against Vedanta and the other errant mining companies.

I hope that better sense will prevail on the government this time in taking a decision on HZL.

In this connection, I would earnestly urge upon the government to

  1. drop the proposal to disinvest its residual share in HZL’s equity
  2. prevent HZL from dealing with Vedanta’s Mauritius-based subsidiary and take action against Vedanta for overriding the government’s interests in HZL by unilaterally proceeding to acquire THL
  3. take urgent legislative action to define “shell companies” and empower regulatory authorities including SEBI, RBI, Registrar of Companies and so on, so as to be able to extend their regulatory reach to overseas shell companies to safeguard the public interest


Yours sincerely,

E A S Sarma
Former Secretary to Government of India

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