Hindustan Zinc CEO rejects Viceroy's brand fee allegations against Vedanta

Business Standard

6 days ago

Viceroy argued that this arrangement not only undermines transparency but also places legal and financial risks on HZL
New Delhi
Hindustan Zinc Ltd (HZL) CEO Arun Misra on Friday dismissed allegations made by US-based short seller Viceroy, which claimed that Vedanta violated its brand fee agreement with the government.
Misra stated that all decisions related to the brand fee were made following proper procedures and board approval.
Viceroy, in a recent report, accused Vedanta of breaching its agreement with the government by collecting brand fees from HZL. Misra clarified that before any proposal reaches the board, it undergoes legal review and is shared in advance with the government of India and its nominee director.
"We are very clear in our approach. We take matters to board after due consultation, legal vetting... we share (the proposals) with the government of India, nominee director before the board meeting. They have adequate time to go through (the proposals)," he told the news agency PTI.
Misra added that it is the board's responsibility to approve or reject proposals and that the brand fee decision was made through this process. "We don't find any issue in that," he said.
According to the latest shareholding data, the government holds a 27.92 per cent stake in HZL, while Vedanta owns 61.84 per cent. During the privatisation process, Vedanta acquired the stake in HZL from the government in 2002.
Over the past few days, Viceroy has released a series of reports against Vedanta and its subsidiaries. One of the biggest claims involves HZL's ₹1,560 crore payment to Vedanta for 'brand and strategic services,' which Viceroy described as lacking commercial justification, despite oversight from government-nominated directors on the board.
Viceroy's claims so far
Viceroy argued that this arrangement not only undermines transparency but also places legal and financial risks on HZL. The report suggested the brand fee deal violated the original shareholder agreement signed during HZL's privatisation.
Viceroy also claimed Vedanta failed to construct a smelter that was contractually required. According to its report, this could trigger a put/call option in the shareholder agreement, allowing the government to either force Vedanta to buy its 29.54 per cent stake in HZL at a 50 per cent premium, or require the government to buy Vedanta's 64.92 per cent stake at a 50 per cent discount posing a potential financial risk of up to $10.66 billion.
In response, a Vedanta spokesperson said the shareholder agreement, signed between the government and Sterlite Opportunities and Ventures (now part of Vedanta), allowed the company to drop the Kapasan project within a year if it was not viable, based on an independent assessment.
'Following a thorough project evaluation, Hindustan Zinc opted for a more cost-effective brownfield expansion at Chanderiya, which was duly approved by the Board, including government-nominated directors. This was communicated to the Ministry of Mines in 2003 and again in 2005, and no concerns were raised. Since the acquisition, HZL's capacity has grown nearly 5-fold,' the spokesperson said.