Hindustan Zinc, a subsidiary of Vedanta, did not seek the approval of the government in establishing its 2023 Brand Fee agreement, whistleblowers have told short-seller Viceroy Research. This can result in a breach of the company’s shareholder agreement with the government, triggering an ‘ event of default’, Viceroy said in its report published earlier today.
The US-based short seller has published a series of reports against the Vedanta group and its subsidiaries over the last few days. The government owns a 27.92% stake in Hindustan Zinc, while Vedanta has a 61.84% stake, latest shareholding data showed.
At 0942 IST, shares of Hindustan Zinc were up 0.5% at 437.20 rupees on the BSE, while those of Vedanta were flat at 447.25 rupees.
“HZL’s unapproved brand fees carry an undisclosed termination clause, and appear to trigger an event of default per its SHA with the Government of India,” Viceroy said in its report published earlier today.
Hindustan Zinc did not immediately respond to a query sent to them.
Vedanta imposed a ‘brand fee’ on Hindustan Zinc in October 2022. This is not only an uncommercial contract, but a breach of the company’s shareholder agreement with the government of India, the firm said. Vedanta had acquired a stake in Hindustan Zinc from the government in 2002 as a part of the privatization process.
According to this shareholder agreement, certain special matters require an affirmative vote from a director nominated by the government.
While Provision 14 limits the ability of directors self-dealing with their own interests without the approval of government-nominated directors, provision 16 limits the ability of Hindustan Zinc to make the provision of guarantees or securities to other companies under the same management, Viceroy said.
Provision 24, meanwhile, limits the ability of the company to make any loans or advances to any person in excess of Rs 20 crore.
Viceroy said that Hindustan Zinc highlighted instances where the company has breached these provisions.
In the event of default, Vedanta must remedy the government within 15 days, the firm said. Failing this, the government can either use a call option to purchase Vedanta’s stake in the company at a 25% discount to the current market value, or ask Vedanta to buy its stake at a 25% premium.
The US-based short seller has published a series of reports against the Vedanta group and its subsidiaries over the last few days. The government owns a 27.92% stake in Hindustan Zinc, while Vedanta has a 61.84% stake, latest shareholding data showed.
At 0942 IST, shares of Hindustan Zinc were up 0.5% at 437.20 rupees on the BSE, while those of Vedanta were flat at 447.25 rupees.
“HZL’s unapproved brand fees carry an undisclosed termination clause, and appear to trigger an event of default per its SHA with the Government of India,” Viceroy said in its report published earlier today.
Hindustan Zinc did not immediately respond to a query sent to them.
Vedanta imposed a ‘brand fee’ on Hindustan Zinc in October 2022. This is not only an uncommercial contract, but a breach of the company’s shareholder agreement with the government of India, the firm said. Vedanta had acquired a stake in Hindustan Zinc from the government in 2002 as a part of the privatization process.
According to this shareholder agreement, certain special matters require an affirmative vote from a director nominated by the government.
While Provision 14 limits the ability of directors self-dealing with their own interests without the approval of government-nominated directors, provision 16 limits the ability of Hindustan Zinc to make the provision of guarantees or securities to other companies under the same management, Viceroy said.
Provision 24, meanwhile, limits the ability of the company to make any loans or advances to any person in excess of Rs 20 crore.
Viceroy said that Hindustan Zinc highlighted instances where the company has breached these provisions.
In the event of default, Vedanta must remedy the government within 15 days, the firm said. Failing this, the government can either use a call option to purchase Vedanta’s stake in the company at a 25% discount to the current market value, or ask Vedanta to buy its stake at a 25% premium.
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