Attorney general GE Vahanvati has submitted an advice to the government, virtually clearing the legal hurdle for sale of residual government stakes in aluminum major Balco and Hindustan Zinc (HZL). According to Vahanvati, pending the dispute over the validity of the call option route — which would have given Anil Agarwal-led Vedanta Group, already majority owner in the two companies through its subsidiaries, the first right to buy/refuse the residual government stakes — the government could consider selling its shares in the open market.
On the face of it, it would seem that the AG’s opinion could pave way for FDI inflows of around $3 billion at a time policymakers are almost desperate for foreign capital of this variety to bridge the current account deficit. But it remains to be seen how Vedanta would respond to auction of the remaining shares of the government in the two metal companies. Early last year, Vedanta had offered R17,275 crore for the government’s residual stakes in HZL and Balco.
The law ministry had earlier suggested that since both Balco and HZL were set up by an Act of Parliament and were public sector companies before Vedanta Group bought majority stakes in them, the Act under which they both were incorporated/nationalised during the 1960s, needs to be amended to sell the government’s residual stakes in them.
Vahanvati, however, noted that HZL has ceased to be a government company for almost a decade.
“One way out could be to sell the shares in the open market, if the prevailing market price is considered to be fair,” the top law officer opined. Citing a December, 2012 Supreme court order, the AG said the de facto situation cannot be reversed.
It may be recalled that Vahanvati’s predecessor Milon Banerji had said that call option was not legally tenable in this case and the matter is now pending before the Arbitration Tribunal.
The government had sold controlling stake in the two companies during 2001-03 and it currently holds 29.5% in HZL and 49% in Balco. HZL was incorporated in January 1966 as a public sector company, while Balco was incorporated in 1965.
The finance ministry had earlier argued for the auction route to sell the remaining government stakes in these companies, a process wherein Vedanta also could participate. “The appropriate transparent manner to disinvest/dispose of shares of the two companies (HZL and Balco) would be through an e-auction of the shares,”