Government eye on Hindustan Zinc dividend payout

The government is keeping a tab on the dividend distribution by Hindustan Zinc Ltd (HZL) to ensure the company doesn’t slip into any financial trouble in its bid to extend generous payouts, a senior official said.

“Divided payout is fine as long as HZL doesn’t have to borrow for the purpose of offering a dividend. It should borrow only for its genuine operational requirements or for expansion, etc. But the moment the government feels that borrowing proceeds are used for the dividend payout, it will raise a red flag,” the official told ET.

However, HZL hasn’t yet reached a stage where the dividend payout would threaten its short or medium-term financial prospects, and the company’s financials are in good shape, said the official.

HZL has announced dividends five times since July 2022 totalling Rs 34,859 crore. Billionaire Anil Agarwal-controlled Vedanta, given its 64.92% holding in HZL, has been the biggest beneficiary with a dividend receipt of about Rs 22,630 crore. The government, too, has raked in Rs 10,297 crore, as it’s a significant minority shareholder with a 29.54% stake in HZL.

An HZL spokesperson declined to respond to ET's queries now, citing "silent period". "However, on July 21, we have our board meeting and all these questions will be answered, if asked, in the analysts' call...," she said.

Shares of HZL gained 1.54% to close at Rs 328.70 apiece on the BSE on Friday, outperforming the benchmark Sensex, which gained 0.77%.

The government intends to offload a part of its stake in HZL through the offer-for-sale route in the current fiscal year. It had to defer its OFS plan in FY23 after a proposal by the HZL board in January to buy Vedanta’s global zinc business in a $2.98-billion cash deal spooked investors and dragged down the company’s share price. Following strong resistance by the government, HZL didn’t pursue the acquisition.

HZL currently holds cash and cash equivalents worth Rs 10,061 crore and its borrowings stands at Rs 11,841 crore. The frequent dividend payouts have turned HZL into a net-debt company from a net-cash one.

Its latest dividend payout announcement on July 8 came before certain debt repayment deadlines for Vedanta. In fact, Vedanta has coupon repayments of $152.2 million due between July 21 and September 11.