India's Power Finance Set to Buy $2.1 Billion Stake in Peer REC

(Bloomberg) -- Power Finance Corp. Ltd., an Indian lender to power projects, will acquire the federal government’s stake in state-run peer REC Ltd. for 145 billion rupees ($2.1 billion), according to a statement to exchanges, formalizing a government plan that was approved in December.

New Delhi-based Power Finance will pay 139.50 rupees a share for about 1.04 billion shares of REC held by the federal government, comprising 52.63 percent of the company’s equity. That is a 3.7 percent discount to REC’s last traded price Wednesday of 144.90 rupees. Power Finance expects to complete the transaction by March 31.

The deal takes the government closer to its 800 billion rupees asset sales target for the fiscal year ending March. It comes as the government raises spending to woo voters ahead of a national election that starts next month.

Power Finance will fund the acquisition by cash. The company has been exempted from making an open offer to minority shareholders, it said in the statement.

India’s cabinet approved the deal in December, triggering concerns from credit ratings companies, which put both lenders on watch. Moody’s said the deal is credit negative for Power Finance because it will materially weaken its consolidated capital ratios.

Losing the sovereign backing after the government sells its stake in the company worried REC’s U.S. dollar bondholders as investors could ask for a prepayment if the government’s holding in the company fell below 51 percent. REC got bondholders’ consent for removing the change-in-ownership covenant after agreeing to pay a fee that Nomura said was “incredibly generous.”

To contact the reporters on this story: Rajesh Kumar Singh in New Delhi at rsingh133@bloomberg.net;Anurag Joshi in Mumbai at ajoshi53@bloomberg.net

To contact the editors responsible for this story: Ramsey Al-Rikabi at ralrikabi@bloomberg.net, Rebecca Keenan, Abhay Singh

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