Vedanta to divest its foreign Zinc assets to Hindustan Zinc

Vedanta has approved the sale of it’s international Zinc assets in South Africa and Namibia to it’s subsidiary Hindustan Zinc (HZL).

  • The transaction is valued at $2.98 bn (approx Rs 25,000 cr)
  • It’s an all-cash deal, which would be completed in a phased manner over 18 months
  • Valuations are estimated at 14.9x FY 24 EV/EBITDA. This is very expensive and would wipe out HZL’s cash. For comparison, HZL is currently trading at 6.7x FY 24 EV/EBITDA.
  • Hindustan Zinc will also start to pay 2% royalty on sales to Vedanta Ltd for Brand name usage, as per the analysts

Rationale for HZL

The acquisition will give it access to a resource base of 35 mt with over 30 years of mine life.

It’s capacity will ramp up from 1.2 mt to 2mt+, while giving access to countries in Africa, Europe, and North America.

Rationale for Vedanta

Very simply, access to significant cash that it desperately needed for varied purpose.

HZL is 65% owned by Vedanta and it seems that the transaction has been structured to suit Vedanta in the short term. However, given the steep valuations and the fact that HZL is still 29.54% owned by the Government, it would be interesting to see if the transaction passes through easily.

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