MUMBAI: Power Finance Corporation’s proposed takeover of the government’s 52.63 per cent stake in Rural Electrification Corporation (REC) could put pressure on the latter’s balance sheet and increase its leverage by up to Rs15,000 crore, India Ratings said on Tuesday.The acquisition will affect PFC’s return on assets and return on equity, the rating agency said, adding, however, that the positive liquidity buckets of PFC over October 2018-March 2019 would address the liquidity concerns.
On December 6, the Cabinet Committee on Economic Affairs gave its in-principle approval for the strategic sale, after which REC is likely to remain a separate entity. While the details of the acquisition deal are being finalised by a group of ministers and secretaries, the agency said the leverage of PFC is likely to go up by Rs 14,000-15,000 crore to buy out the government’s stake in REC.
“The acquired entity may breach the group/single borrowing limit with banks and may require diversification with regard to lenders/investors,” the agency said.The cash and cash equivalents in the balance sheets of PFC and REC were Rs 1,799 crore and Rs 22 lakh, respectively, in the first half of FY19.
The agency said the ratings of REC and PFC will be aligned. “However, until the formalities of the acquisition are complete, it will continue to rate REC on the basis of the support it derives from the government as a public policy institution,” it added.
The acquisition is aimed at achieving the integration of the power financing businesses of REC and PFC. The disinvestment proceeds will boost the government’s finances and help reduce fiscal slippage.