Hindustan Zinc is now drained of all its cash that it had on the books post its recent dividend announcement.

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The company's board on Tuesday announced an interim dividend of Rs 26 per share. This is the fourth instance of Hindustan Zinc announcing a dividend in the current financial year.

With this announcement, Hindustan Zinc has declared a total dividend of Rs 75.5 for the full year.

The dividend announcement of Rs 26 this quarter is also the second-highest that the company has announced in a quarter. It had declared a dividend of Rs 27.5 in March 2017.

As of the December quarter, the company had cash worth Rs 11,378 crore on its books. The current dividend payout would mean an outgo of Rs 10,986 crore, implying the entire cash being used up for the same.

What Does This Mean For Vedanta?

Vedanta, Hindustan Zinc's promoter entity owns 64.92 percent stake in the company. Based on the recent dividend payout, the company would earn Rs 7,132 crore.

For the current financial year, Hindustan Zinc has paid a total of Rs 20,710 crore as dividend to Vedanta, which is nearly triple of its nine-month profit figure of Rs 7,928 crore.

With this announcement, the street will now expect Vedanta to pass this through and declare a dividend of Rs 19.2 per share.

In case such a dividend is announced by Vedanta, the parent Vedanta Resources will get up to $600 million and that would help them service their debt obligations.

A Vedanta spokesperson told CNBC-TV18 last month that the company is in a comfortable position to meet debt maturing in April and in the first quarter of the next financial year, and that there is no question of a default.

The street had been fearing a default at promoter Vedanta Resources, leading to shares underperforming.

Long-term debt maturities for the next few years are a little over $7 billion. In the first half of the next financial year, there are maturities amounting to $900 million which are due. Since there is a fear of default the bond prices have been falling which has an inverse relation with yields.

Chairman Anil Agarwal in an exclusive interview with CNBC-TV18 also said that he is more confident about making bond payments as the company has enough internal accruals to take care of it.

Losing Hindustan Zinc's cash reserves has been one of the major reasons why the government has been objecting towards Hindustan Zinc's move to acquire Vedanta's global zinc assets in a deal valued by nearly $3 billion. The deal entails an immediate cash consideration of $2.4 billion to Vedanta Limited for sale of THL Zinc, Mauritius, with assets in Namibia and South Africa, with the balance $0.58 billion being paid later.

In an interaction with CNBC-TV18 on February 20, Hindustan Zinc's CEO and whole-time director Arun Misra said that he will hold consultations with all stakeholders to ensure the deal goes through. He also expressed hope that the government OFS in Hindustan Zinc will go through before March 31.

With only 6-7 working days left in the current financial year, there is still no clarity on whether the OFS would take place in the current financial year. The dividend announcement has come amidst lack of clarity on both the deal status, and the proposed OFS.

Also Read: Vedanta repays $100 million to StanChart, pledged shares released

Brokerage firm Investec believes that the bumper payout from Hindustan Zinc could well be its last, as its coffers are now empty. With regards to Vedanta, the firm said that post this, Vedanta will have to rely on the Zinc International deal going through for incremental payouts, or bear prolonged pain with high-cost refinancing. "With most of equity pledged/encumbered, its options are limited," the note said.

Investec downgraded Vedanta to Sell from the earlier rating of Hold, and has maintained its Sell recommendation on Hindustan Zinc.

Citi has also maintained its Sell rating on Hindustan Zinc with a price target of Rs 260. It said that following this announcement, HZL will turn into a net debt from a net cash company.

Also Read: When shall the Indian government be able to sell stake in Hindustan Zinc

First Published:Mar 22, 2023 11:36 AM IST