NEW DELHI: State-owned power sector financier Power Finance Corporation (PFC) completed its mega deal to buy majority stake in REC Ltd on Thursday by transferring Rs 14,500 crore to the government.
Proceeds from the deal, which includes strategic sale of 52.63 per cent of paid-up equity shareholding of REC held by the government to PFC along with transfer of management control, helped the government exceed its disinvestment target of Rs 80,000 crore for 2018-2019.
“Now, PFC will be the holding company of REC and also its promoter,” said PFC chairman and managing director Rajeev Sharma. He is hopeful that the merger of PFC and REC during the next financial year. “As soon as we get a heads-up from the government in this regard, we would appoint a consultant to take the procedure forward,” Sharma said, adding the deal would accord PFC a higher strategic importance, making it the second largest government-owned financial firm in the country based on market capitalisation after the State Bank of India.
PFC has financed 70 per cent of the deal through cash inflows from the business and the balance 30 per cent is via debt instruments. The acquisition has presented PFC with a significant inorganic growth opportunity, whereby on a consolidated basis, Sharma said, PFC’s asset book, income and profit would be nearly doubled. Post the deal, the company’s consolidated annual income would be about Rs 50,000 crore and annual profit about Rs 11,000 crore.
“PFC’s strategic importance to the government will further increase upon completion of the acquisition, as the combined entity will become the biggest non-bank finance entity in which the government holds a controlling stake. In addition, it will account for the majority of financing for state power utilities. State power utilities in turn still account for a material portion of power generation capacity in India,” Moody’s said.