Singapore: India just won a tidy $860 million surprise present, for which the country’s taxpayers and government owe a vote of thanks to Vedanta Resources Plc.
Size of Hindustan Zinc’s special dividend, including tax: $1.8 billion
The gift came in the form of a special cash dividend announced Wednesday by Hindustan Zinc, a former state-controlled miner that was privatized 14 years ago. Vedanta’s Indian unit, which owns about 65% of the zinc producer according to Bloomberg data, would love to buy the 29.5% stake still held by cash-strapped authorities, who would be glad to sell, except that any deal can’t go through because the country’s top court is yet to decide whether the 2002 privatization was legal in the first place.
But Hindustan Zinc is sitting on something that’s extremely valuable for Vedanta’s lenders: $5.3 billion in cash.
Vedanta’s 2019 dollar bonds, which have mostly traded around the 60-cent mark this year, jumped 13% on Thursday on the dividend announcement. It’s quite possible, as UBS says it suspects, that Indian unit Vedanta Ltd will kick all of its $960 million share of the payout to the global parent, including an inter-company loan repayment. That leaves $860 million of the $1.8 billion dividend going to the government as taxes and as a reward for being a reluctant but lucky owner.
This is a cycle of dependence in which Vedanta’s misery is India’s bounty. Vedanta needs to retire or refinance $1.7 billion of debt by March next year, and the zinc unit’s dividends will come in handy, even if a hefty chunk must be surrendered to the government: Copper, which accounts for more of Vedanta’s revenue than any other metal, has started cracking again on fresh worries about Chinese demand. The mainland’s aluminium glut might be easing, but global prices are still weak.
Zinc presents a contrast: Over the past three months, it’s been one of the top-performing metals on the UBS Bloomberg CMCI Index. While prices are still almost 60% cheaper than their 2006 record, ICBC Standard Bank warns of “unprecedented concentrate deficits.” If those shortages drive prices higher, Hindustan Zinc might just present itself as an even bigger solution to Vedanta’s debt woes.
The Indian government can certainly expect a good price for parting with its stake eventually. Until then, sitting on those shares should be pleasurable enough. Bloomberg