Hindustan Zinc crashes 8% as Vedanta raises stake for sale via OFS to 3.17%

Shares of Hindustan Zinc plummeted nearly 8 percent on Friday, August 16, following the announcement by its promoter, Vedanta, that it will sell a larger portion of its stake through an Offer for Sale (OFS) than initially planned.

The OFS, which opened for subscription today and will conclude on August 19, comes with a price of ₹486 per share—representing a 15 percent discount to Hindustan Zinc's closing price on Wednesday.

Initially, Vedanta had intended to sell 11 crore shares (2.6 percent of total equity) in Hindustan Zinc. However, the company has now increased this to 13.3 crore shares, equivalent to 3.17 percent of total equity. The OFS will include a base offer of 1.22 percent with an option to sell an additional 1.95 percent if demand exceeds expectations.

If all 13.37 crore shares are sold at the floor price, Vedanta stands to raise approximately ₹6,500 crore.

The OFS is structured to allow non-retail investors to participate on Friday, with retail investors, who have 10 percent of the shares reserved, getting their turn on Monday.

Stock price trend

The stock plunged by as much as 7.8 percent to reach its intraday low of ₹528. This marks a significant drop of nearly 35 percent from its peak of ₹807, achieved on May 22, 2024. Despite this decline, the stock remains over 85 percent above its 52-week low of ₹285, recorded on March 15, 2024. Over the past year, the stock has surged 82 percent and IT gained 66 percent in 2024 year-to-date.

However, in August alone, it has lost almost 17 percent, continuing its downward trend for the third consecutive session. It also fell 3.4 percent in July and 2.3 percent in June. Earlier in the year, the stock experienced a strong rally, soaring 60.5 percent in May and 64 percent in April. However, the first three months of 2024 were less favorable, with declines of 6.4 percent in March, 3.4 percent in February, and a slight dip of 0.24 percent in January.

As of June 2024, Vedanta held a 64.92 percent stake in Hindustan Zinc, while the Indian government held 29.54 percent, valuing Hindustan Zinc at ₹2.42 trillion. Hindustan Zinc, India's largest zinc producer, is currently cash positive.

The stake sale news follows a Bloomberg report that Vedanta is aiming to raise $2.5 billion to manage its substantial debt. This comes after the company recently paused plans to sell its steel business, having raised ₹8,500 crore through a Qualified Institutional Placement (QIP) of shares. Vedanta and its UK parent, Vedanta Resources (VRL), are both focused on reducing their debt burden.

As of the end of June 2024, Hindustan Zinc reported a debt of ₹11,178 crore, contributing to Vedanta Group's consolidated debt of ₹78,016 crore. In May, Hindustan Zinc announced an interim dividend payout of ₹4,225 crore.

Hindustan Zinc's board is scheduled to meet on August 20 to consider a second interim dividend proposal. The company had previously declared a ₹10 per share interim dividend in May this year. Additionally, according to a report from PTI, Hindustan Zinc is considering a special dividend payout of ₹8,000 crore to its shareholders for the current fiscal year.

In July, Vedanta raised nearly $1 billion ( ₹8,500 crore) by issuing 193.1 million new equity shares at ₹440 each through the qualified institutional placement route.