PFC explores options to maintain PSU character post merger with REC

By Subhash Narayan

New Delhi, June 20 (IANS) Power Finance Corporation Ltd. may reduce its share capital post merger with REC Ltd. in order to maintain its public sector character of the merged entity with 51 per cent shareholding of the government.

Post PFC-REC merger, government shareholding in the merged entity is expected to fall to about 42-43 per cent taking the company outside the PSUs fold.

"Various options are being looked at by Deloitte which has been appointed as a consultant to see through the completion of the merger. The best suited option looks like extinguishing or reducing the liability on any of its shares in respect of capital not paid up or cancelling any paid up capital that is lost or unrepresented by available assets," said a government official privy to the development.

"The preference is for no cash mechanism that could allow us to maintain 51 per cent holding for the government post merger. However, if need be, the company may also look at paying off any paid up capital that is in excess of the requirements and that does not impact power sector financier's lending," the official added.

In March, PFC acquired government's 52.63 percent stake, or 104 crore shares, in another state-owned power financier REC at Rs 139.5 a piece, 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 would be next on agenda and the process would be started in ongoing fiscal year. But with complications arising over government shareholding, the process could get delayed and merger may actually be completed in the first quarter of next financial year (FY21).

"The consultant is expected to take seven to eight months time to give its report on the merger and detail the roadmap. This would take the matter to last quarter of this year so actual merger will happen only next year," said a PFC official asking not to be named.

The merger of two largest state-owned power sector financiers will create a common platform for lending to the sector. PFC will benefit from the exercise as it would get access to the wide geographical reach of REC and will also be able to leverage the expertise of REC in distribution and transmission. REC, on the other hand, will be able to leverage the expertise of PFC in the power generation space. The merger will also facilitate resolution of stressed assets as the entity would be equipped with a wider pool of information.

(Subhash Narayan can be contacted at subhash.n@ians.in)