How the government reduced the joint venture Hindustan Zinc Ltd (HZL) from a debt-free company to an indebted one, indirectly helping the Vedanta Group
To
Smt Nirmala Sitharaman
Union Finance Minister
Dear Smt Sitharaman,
I refer to my earlier letter dated 17-3-2023 (https://countercurrents.org/2023/03/is-the-government-deliberately-or-otherwise-helping-the-promoters-of-the-vedanta-group/) in which I expressed my concerns about the multiple ways in which the government have taken action, that directly and indirectly benefitted the Vedanta Group.
In particular, I questioned the manner in which the Ministry of Finance and the Ministry of Mines have encouraged Hindustan Zinc Ltd (HZL) to declare unconscionably high dividends during the last several years, often in violation of Section 123 of the Companies Act (Dividend payouts exceeding the profits of the company), which benefited the private promoter, namely, the Vedanta Group by helping that group to redeem its debt at the cost of the financial health of HZL.
In this connection, I wish to invite your attention to a news report (https://www.business-standard.com/companies/news/hindustan-zinc-turns-into-a-net-debt-company-for-the-first-time-in-25-years-123042701129_1.html), which rightly pointed out that “the improvement in the balance sheet of Vedanta Resources, the holding company of Vedanta Group, seems to be happening at the expense of its key operating firms such as Hindustan Zinc (HZL). HZL has turned from a debt-free company to an indebted one (on a net basis) in FY23 for the first time in more than 20 years. The metal producer gave all its accumulated cash reserves through a special dividend last financial year and was forced to borrow additionally to fund its capex plans”
This assumes special significance in the context of the statements made again and again by the DIPAM Secretary (https://www.business-standard.com/article/companies/govt-to-sell-some-stake-in-hindustan-zinc-by-next-month-dipam-secy-123020200983_1.html) of the government’s obstinate plan to disinvest a portion of its residual equity share in HZL. Apparently, DIPAM is either blissfully ignorant of how the inherent value of HZL has got eroded as a result of the highly imprudent dividend payout policy imposed by the Finance Ministry on CPSEs, especially HZL, or is deliberately intent on underselling that share, knowing well that it is the government and the public at large that would stand to lose in the process.
The concerns expressed by me on HZL and its majority shareholder, the Vedanta Group are far too important from the public interest point of view that the government can ill-afford to brush them aside.
I demand an independent investigation of the multiple concerns expressed by me on this and also demand that the government, once and for all, drop all further plans to disinvest its residual equity share in HZL.
Regards,
Yours sincerely,
E A S Sarma
Former Secretary to the Government of India
Visakhapatnam
