PFC Said To Appoint Deloitte As Consultant For Its Merger With REC
After the PFC-REC merger, the government’s stake in the proposed combined entity is expected to fall below 50 percent. (Photographer: Akio Kon/Bloomberg)

PFC Said To Appoint Deloitte As Consultant For Its Merger With REC

Power Finance Corporation Ltd. has appointed Deloitte as a consultant to see through the completion of its merger with state-run peer REC Ltd., a government official told BloombergQuint.

After the PFC-REC merger, the government’s stake in the proposed combined entity is expected to fall below 50 percent. The government would want to have a 51 percent stake to be the majority shareholder but hasn’t decided how it will be done, the official said, requesting anonymity as the information is not public.

The consultant, he said, will see whether to opt for a share swap or raising equity, among other options, for the PFC-REC merger.

On March 20, PFC acquired the government’s 52.63 percent stake, or 104 crore shares, in power financier REC at Rs 139.5 apiece, along with the transfer of management control. The cost of acquisition was Rs 14,500 crore. Rajeev Sharma, chairman and managing director at PFC, had then said the PFC-REC merger process was expected to begin in the ongoing financial year.

PFC and REC are Navratna central public sector enterprises with a combined annual revenue of about Rs 50,000 crore, according to a PFC statement in March. REC, according to its investor presentation, had a cash balance of Rs 2,460 crore as on Dec. 31 and borrowings worth Rs 232,404 crore. Its total loan book stood at Rs 2,46,484 crore as on March 31, 2018.

When companies are into almost similar line of business, there’s no rationale for separate entities, said Anil Gupta, head (financial sector ratings) at ICRA Ltd.

REC has an indirect ownership of the government; therefore, when PFC and REC will be merged, debt investors of REC will have a better comfort on the overall entity, Gupta told BloombergQuint over the phone. “That’s because the borrowing cost of REC is higher than PFC currently.”

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