By Nikunj Ohri
(Reuters) - The Indian government may put a plan to sell part of its stake in Hindustan Zinc (HZL) on hold unless the company calls off the nearly $3 billion cash acquisition of two Vedanta Group subsidiaries, a senior government source said.
The government is the largest minority shareholder in HZL with a 29.54% stake in the company, while Vedanta owns 64.9%.
The government had planned to sell part of it in the 2022/23 fiscal year ending March 31, which would help it to achieve its 500 billion rupees ($6.10 billion) divestment target for the year.
In January, HZL's board approved buying Vedanta Group's zinc businesses for $2.98 billion.
"Investors need certainty about the deal and till a finality is reached, the government may not go ahead with its planned offer for sale," the source said on condition of anonymity.
An email sent to a finance ministry spokesperson outside business hours did not immediately elicit a response.
The government has only garnered 311 billion rupees from stake sales in public sector companies so far in 2022/23 and deferring the HZL share sale may lead to it missing its divestment target.
To underscore its opposition to the deal, the government wrote a letter to the Securities and Exchange Board of India saying that despite being the largest minority stakeholder in the company, it was "kept in the dark" about the related-party transaction.
In a separate letter addressed to HZL, a copy of which was sent to the exchanges, the government had threatened legal action if the company proceeds with the all-cash deal.
The proposed deal between HZL and Vedanta has also spooked investors, leading to a drop in HZL's share price.
From its 2023 high of 383 rupees, the shares have dropped around 20% to 304.4 rupees as of Friday.
($1 = 81.9600 Indian rupees)
(Reporting by Nikunj Ohri; Editing by Swati Bhat and Jamie Freed)