To
Smt Nirmala Sitharaman
Union Finance Minister
Dear Smt Sitharaman,
I understand that the Vedanta Group as usual has announced an excessive dividend pay-out to the shareholders of Hindustan Zinc Limited (HZL) in which the government has a 29.54% equity share. The promoters of the Vedanta Group have been bleeding HZL over the years of its limited internal resources, eroding its capacity to invest on sustainable mining of zinc and other minerals, with tacit support from your Ministry and the Ministry of Mines.
Such high dividend pay-outs, in my view, are violative of the intent of Section 123 of the Companies Act which requires dividends to be paid out of profits only. HZL’s dividends over the years have far exceeded its profits.
I wonder whether the officials of your Ministry and those of the Ministry of Mines have fully understood the far reaching implications of high dividend pay-outs of HZL announced by the Vedanta Group year after year.
In the last two years, HZL had to shell out Rs 48,531 crore in dividends against its free cash flow of Rs 38,508 crore. Thus, it’s been depleting its cash reserves to make those payments. HZL’s cash reserves have nearly halved to Rs 30,137 crore over the Financial Year 2023-24. As a result of its excessive dividend pay-outs, HZL in itself has become debt-ridden.
Roughly, for every rupee of dividend that the government as the shareholder gets, the Vedanta Group nonchalantly pockets more than two rupees, most of which gets bankrolled to the UK-located parent company of the Vedanta Group to help lessen its massive debt of billions of dollars, which the latter is unable to repay otherwise. The rest of the dividend amount cornered by the group goes to repay the debt of the domestic company.
In other words, your Ministry, ably supported by the Ministry of Mines, is complicit in helping the Vedanta Group drain HZL’s scarce resources to fund the debt repayment liability of Vedanta companies, both domestic and overseas, rather than helping HZL itself to make crucial investments in exploration/ development of its mines, in waste recycling to recover strategic mineral residues and ensure sustainability of its mining activity in the long run. In effect, the two Central Ministries are unwittingly or otherwise weakening HZL and eroding its intrinsic value to benefit the heavily debt-ridden private promoter.
I feel that this is a matter that calls for an independent enquiry so that the Parliament and the public at large may be apprised of the impact of excessive dividend pay-outs on the intrinsic worth of HZ.
I sincerely hope that your Ministry ponders over this with the seriousness it deserves and takes urgent corrective action.
Regards,
Yours sincerely,
EA S Sarma
Former Secretary to the Government of India
Visakhapatnam
