India writes to markets regulator opposing Hindustan Zinc-Vedanta deal- sources

FILE PHOTO: A man walks past the logo of Vedanta outside its headquarters in Mumbai

By Nikunj Ohri and Sarita Chaganti Singh

(Reuters) - The Indian government has written to the markets regulator underscoring its opposition to Hindustan Zinc's plans to buy two Vedanta Group subsidiaries, three government officials said on Thursday.

The board of Hindustan Zinc (HZL) - in which the government is the largest minority shareholder with a 29.54% stake - had in January approved buying Vedanta Group's zinc businesses in cash for $2.98 billion.

HZL shares have declined nearly a sixth since then.

The Ministry of Mines said in the letter, sent in February, that despite being the largest minority stakeholder in the company, the government was "kept in the dark" about the deal, one of the officials said, speaking on condition of anonymity as the person is not authorized to speak to media.

Separately, it had threatened legal action if the company proceeds with the all-cash deal, according to a letter sent to the company, a copy of which was sent to the exchanges.

Vedanta, Hindustan Zinc, the Ministry of Finance and the Ministry of Mines did not respond to Reuters' emailed queries.

India's regulations would allow the government to block the deal, which will qualify as a 'related party transaction' and need approval from a majority of the minority investors in a company.

The Vedanta Group first acquired a 26% stake in HZL from the government in 2002, buying an additional 20% through an open offer. It presently holds 64.9% in HZL.

Subsequently, the two sides were locked in a dispute which had prevented the government from selling its remaining 29.54% stake in HZL.

That dispute ended in 2022 and the government planned a part sale of shares in HZL to help meet the divestment target of 500 billion rupees ($6.06 billion) for 2022/23.

The proposed deal between Hindustan Zinc and Vedanta has jeopardized the government's plans as investors have turned jittery leading to a drop in the HZL's share price, the first official said.

The offer was set to launch in March, but "is now marred by uncertainty," the official said.

($1 = 82.5425 Indian rupees)

(Reporting by Nikunj Ohri and Sarita Chaganti Singh in New Delhi; Editing by Nivedita Bhattacharjee)