Shares of Hindustan Zinc Limited (HZL) plunged 8% to ₹514.10 on the BSE on 6th November as the Government of India announced its decision to divest up to 2.5% of its stake in the company. The stake sale will be conducted through an offer for sale (OFS) at a floor price of ₹505 per share, potentially raising over ₹5,000 crore for the government.
This marks a significant move for HZL shareholders, given the potential impact of the sale on share prices. Such developments are often crucial for those who invest in stocks, especially in companies where the government holds a substantial stake.
Structure of the OFS and investor bidding
The government will initially offer a 1.25% stake in HZL with an additional 1.25% greenshoe option, allowing for additional subscriptions should investor interest exceed initial estimates. If demand meets expectations, over 5.28 crore shares could be sold through the OFS.
Institutional investors are first in line to bid, with the OFS opening to them on 6th November. Retail investors, on the other hand, will have the opportunity to participate from 7th November. The floor price of ₹505 per share represents a 9.7% discount on the previous closing price of ₹559.45, which could attract retail investors and short-term traders looking for a potentially favourable entry price.
DIPAM’s statement on the sale
The Department of Investment and Public Asset Management (DIPAM) confirmed the government’s intention to reduce its stake via OFS, with DIPAM Secretary Tuhin Kanta Pandey making the announcement on social media. In line with the government’s ongoing disinvestment initiatives, this sale is expected to bolster public finances. The OFS mechanism allows for the efficient sale of government stakes in listed entities without impacting their regular trading too severely while also increasing public ownership.
Context on Hindustan Zinc and shareholder composition
Hindustan Zinc, a leading global player in zinc, lead, and silver production, operates from its headquarters in Udaipur, Rajasthan, with substantial mining and smelting facilities across India. The company’s major shareholder is Vedanta Limited, which holds a 63.42% stake, while the Government of India holds a 29.54% stake. LIC, India’s largest insurer, holds a smaller stake of 2.76%, with mutual funds owning a mere 0.06%.
The government’s decision to divest comes amid a broader trend of stake sales, often implemented through the OFS mechanism to achieve disinvestment targets. This decision follows Vedanta’s previous attempt in August to offload a substantial stake in HZL, highlighting ongoing restructuring and funding strategies by the company and its key stakeholders.
Market reaction and impact on investors
Despite HZL’s impressive 76% growth in 2024 alone and a remarkable 89% rally over the past 12 months, this recent OFS announcement has weighed down investor sentiment, as seen in the stock’s 8% decline. When a substantial stake is put on the market, especially at a discount, existing shareholders can often experience dilution, which may affect stock performance in the short term.
For those who invest in stocks, the discounted floor price in this OFS could present a buying opportunity for HZL shares. However, prospective investors must weigh the potential for immediate gains against the risk of short-term volatility resulting from a significant increase in available shares.
Looking ahead
The government’s stake reduction is part of a wider disinvestment programme aimed at raising funds for various fiscal initiatives. Investors, particularly retail participants who will access the OFS on 7th November, should carefully consider the market’s reaction to this move.
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