PFC completes REC acquisition
New Delhi: State-owned Power Finance Corporation (PFC) on Thursday completed acquisition of majority stake in REC Ltd by transferring Rs 14,500 crore to the government and is hopeful of merger of the two firms in 2019-20.
The transaction assumed significance because it helped the government meet its disinvestment target of Rs 80,000 crore for the current financial year.
"We are hopeful about merger of the two firms (PFC and REC) during 2019-20. We have to get direction from the government in this regard and then we would appoint consultant for the purpose," PFC Chairman and Managing Director Rajeev Sharma told reporters in a press conference on the deal.
This stake acquisition was in pursuance to the in-principle approval from the Cabinet Committee on Economic Affairs for strategic sale of 52.63 per cent of paid-up equity shareholding of REC held by the government to PFC, along with the transfer of management control.
Sharma further said, "In line with the agreement, REC acquisition transaction by PFC got concluded today (Thursday) with release of payment to the government and transfer of REC shares to PFC. Now, PFC will be the holding company of REC and also its promoter."
PFC has acquired 103.94 crore shares constituting 52.63 per cent equity stake held by the government in REC along with the management control at a cash purchase consideration of Rs 14,500 crore. The acquisition price of REC per equity share worked out to Rs 139.50 per piece.
PFC has financed 70 per cent of the deal from the cash inflows from the business and the balance 30 per cent is through debt.
PFC Director (Finance) N B Gupta said the company was in discussion with Bank of Baroda, Life Insurance Corporation and State Bank of India, among others, to raise money for the deal.
Gupta said, "It would be difficult to tell who have financed this deal. We had a pool of funds raised through different modes and investors. There was a lot of funds availability in the market at competitive rates."
PFC borrowed around Rs 88,000 crore at competitive rates this fiscal and out of this, 50 per cent borrowing has been through term loans. The loans availed from banks are mostly based on marginal cost of funds-based lending rate (MCLR).
Sharma said all domestic rating agencies have assigned PFC the highest safety rating of AAA after this transaction.
He further said, "The acquisition of REC by PFC has presented PFC with a significant inorganic growth opportunity, whereby on a consolidated basis, PFC's asset book, income, profit etc. would be almost doubled."
After this deal, as on December 2018, PFC's loan assets would be around Rs 6 lakh crore and on the basis of 2017-18 financials, the consolidated annual income would be about Rs 50,000 crore and annual profit about Rs 11,000 crore.
Considering the significant increase in size and profitability, it is expected that PFC would have higher strategic importance in financing of the power sector. PFC, therefore, will be a dominant player not only in the power sector but also in the entire financial market space, Sharma added.
PFC will be the second-largest government-owned financial player in the country based on the current market capital after State Bank of India (SBI). Besides, PFC will be third-highest profit making financial player in India after HDFC Bank and HDFC - based on profit data of 2017-18.
PFC on a consolidated basis is the third-highest profit making public sector undertaking in India after Indian Oil and ONGC based on the Department of Public Enterprise survey profit data for 2017-18.
It will be fourth-largest financial player in the country based on interest income after SBI, HDFC Bank and ICICI Bank based on income data of 2017-18, Sharma said.
Both PFC and REC are navratna central public sector enterprises with a combined annual revenue of about Rs 50,000 crore and this acquisition is a step towards consolidation of companies operating in the same space.