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PFC To Buy Government’s Entire Stake In REC For Rs 14,500 Crore

PFC will buy the government’s 104 crore shares in REC at Rs 139.50 apiece—a discount of 4 percent to its current market price.

Power lines hang over building tops in Mumbai, India. (Photographer: Prashanth Vishwanathan/Bloomberg)
Power lines hang over building tops in Mumbai, India. (Photographer: Prashanth Vishwanathan/Bloomberg)

The cabinet approved the sale of government’s entire 52.63 percent stake in power sector financier REC Ltd. to state-run peer Power Finance Corporation Ltd., in what will help it mop up funds to meet the divestment target for the ongoing financial year.

PFC will buy the government’s 104 crore shares in REC at Rs 139.50 apiece—a discount of 4 percent to its current market price—along with the transfer of management control, according to its media statement updated on the stock exchanges. The total cost of acquisition is about Rs 14,500 crore, it said, adding the deal will be completed on or before March 31.

On Dec. 6, the Cabinet Committee on Economic Affairs had given in-principle approval for the transaction. All regulatory approvals, including from the Securities and Exchange Board of India, Reserve Bank of India and Competition Commission of India, too, have been received.

The acquisition will improve efficiencies in lending process and create substantial public value by offering better loan products to the power sector, according to the statement. The diversification of assets, it said, will help both entities to manage the resolution of stressed power assets.

PFC and REC are Navratna central public sector enterprises with combined annual revenue of about Rs 50,000 crore, the statement said.

REC had a cash balance of Rs 2,460 crore as on Dec. 31 and borrowings worth Rs 232,404 crore, according to its investor presentation.

The total loan book of REC stands at Rs 2,46,484 crore as on March 31, 2018, its annual report said. The company has nearly 2.36 lakh borrowers from the public sector and 33,000 from private sector. REC’s net non-performing assets stands at Rs 10,666 crore as on Dec. 31.

Since Dec.6, shares of REC and PFC have risen 38 percent and 24 percent, respectively, according to Bloomberg data. That compares with a gain of 3.7 percent in the BSE Power Index during the period.

PFC To Buy Government’s Entire Stake In REC For Rs 14,500 Crore
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