Hindustan Zinc Ltd.

PRESS NOTE ON HINDUSTAN ZINC LTD. (HZL)

Government of India has decided to disinvest 26% equity in Hindustan Zinc Limited in favour of Sterlite Opportunities and Ventures Limited, a Special Purpose Vehicle promoted by Sterlite Industries (India) Limited and Sterlite Optical Technologies Limited, at a price of Rs.445 crore (amounting to Rs.40.50 per share).

This means a P/E (price/earning) ratio of about 21. The average dividend paid by the Company, calculated for 26% equity, over the last eight years till 2000, has been of the order of Rs.3.50 crore per year. Details of P/E ratios for strategic sale of other companies are given in the Annexure.

BNP Paribas served as the Advisor and M/s Amarchand Mangaldas & A Shroff and Company served as the Legal Advisor to the transaction.

HZL was incorporated in January, 1966 as a Public Sector Company after the takeover of the erstwhile Metal Corporation of India Limited. Its paid up capital is Rs.422.53 crore out of which Government of India holds 75.92% while Financial Institutions, other Corporate Bodies (including NRIs) and Indian nationals hold the balance equity. It is a profit making and listed company and its shares are traded at the Stock Exchanges of Mumbai, Delhi and Jaipur. There has been a spurt in its share prices, especially after the successful disinvestment of VSNL, IBP etc. The weighted average price of shares over the last six months is about Rs.25.30 and the average weekly high and low of closing price for last six months is over Rs.22 per share.

The decision to disinvest 26% equity through strategic sale was taken on 29.8.2000. Following due process, price bids were invited from all the Qualified Interested Parties, to be received on 8.11.2001. Only one QIP submitted the price bid which was rejected since it was lower than the reserve price fixed.

In pursuance of Government directions, a renewed exercise was undertaken involving the original QIPs who had completed their due diligence as well as the Advisors/Legal Advisors to ensure how the value depleters in the transaction

documents and bidding conditions be modified to enhance the potential value of the company in order to make it more attractive to the bidders. M/s URS Corporation was appointed to conduct environmental, health and safety due diligence review of the company. Amongst the modifications made in the transaction documents are the sequencing of call and put options and their pricing, the provision to have the Chairman nominated by the Strategic Partner once it acquires 51% stake, unlimited environmental indemnity for a period of three years and a clear road map for the Government to exit from the company. Besides, sale price has been de-linked from Public offer price under the SEBI Takeover Code. Meanwhile, on 28.2.2002 it was announced that the customs duty will be reduced from 35% to 25%, which is likely to impact on the profitability of the company.

Finally, price bids were invited from all the five Qualified Interested Parties (Glencore International, Binani Industries, Indo-Gulf Corporation, Sterlite and Metdist).

Two financial bids were received from M/s Indo Gulf Corporation and M/s Sterlite Opportunities and Ventures Limited. The reserve price fixed was Rs.32.15 per share (Rs.353.17 crore for 26% stake). Both the price bids received were above the reserve price. The higher bid, that of M/s Sterlite Opportunities and Ventures Limited, for Rs.445 crore (translating to about Rs.40.50 per share) was accepted. The price offered by M/s Sterlite Opportunities & Ventures Limited is substantially higher than the offer made by Sterlite Industries in November, 2001.

The transaction was closed on 11.04.2002. An attractive ESOP scheme was offered to the employees and full-time functional directors of the Company. 1.46% shares were sold to employees @ Rs. 10/- per share in Dec. 2002.

As part of thr "Call Option' available to the Strategic Partner, Government parted with another 18-92% for Rs. 323.88 crore @ Rs. 40.50 per share in November, 2003.

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Annexure

P.E. RATIOS

STAKE HOLDER: TAX PAYER
SALE OF SHARES Vs. STRATEGIC DISINVESTMENT

Sale of Shares

          

Strategic Disinvestment

1991-99          2000-2002

1. IOC = 4.9     1. BALCO = 19
2. BPCL = 5.7     2. CMC = 12
3. HPCL = 5.9     3. HTL = 37
4. GAIL = 4.4     4. MFIL = very high *
5. VSNL = 6.0     5. LJMC = - do -
(in monopoly days)      6. PPL = - do -
        7. JESSOP = - do -
        8. IBP = 63
        9. VSNL = 11 **
        10. HZL = 21

* as earning per share was negative

** inclusive of income from dividend etc. (after the end of monopoly)