Shares of Power Finance Corporation (PFC) and REC Ltd are expected to be in focus on Monday after the boards of the two state-owned lenders approved a scheme of merger to create a power sector financing institution with a combined loan book of more than Rs 11 lakh crore.
In a press release issued late on Sunday, PFC said its board and the board of REC approved the scheme under Sections 230 to 232 of the Companies Act, 2013, for the amalgamation of REC into PFC, subject to statutory and regulatory approvals.
Share Swap Arrangement
Under the approved share swap arrangement, REC shareholders will receive 88 equity shares of PFC for every 100 equity shares held in REC. The share exchange ratio was arrived at based on a joint valuation exercise, while the record date for the merger will be announced later by the boards of the two companies.
The merger remains subject to the condition that the combined entity continues to qualify as a government company under the Companies Act, with the Government of India retaining majority voting rights and control, directly or indirectly.
PFC said Deloitte Touche Tohmatsu India LLP acted as the transaction and tax advisor, while Cyril Amarchand Mangaldas served as the legal advisor to both companies. RBSA Valuation Advisors LLP and Ernst & Young Merchant Banking Services LLP prepared the joint valuation reports for PFC and REC, respectively. SBI Capital Markets and Nuvama Wealth Management provided fairness opinions on the valuation.
Fundraising
Separately, REC's board also approved a proposal to raise up to Rs 1.4 lakh crore through the private placement of secured or unsecured non-convertible bonds and debentures over the next one year, subject to shareholder approval at its upcoming Annual General Meeting. The proceeds will be used to support the company's lending operations.
The merger process has been in motion since early June, when the President of India approved the proposal, nearly seven years after PFC acquired the government's majority stake in REC. The proposal was subsequently cleared by the Ministry of Power and was also referenced by Finance Minister Nirmala Sitharaman in this year's Budget as part of the government's plan to improve scale and efficiency among public sector NBFCs.
The proposed amalgamation is expected to create a stronger balance sheet, enhance financing capacity for India's power sector and simplify the ownership structure of the two government-owned lenders.
Essential Business Intelligence, Sharp Market Insights, Practical Personal Finance Advice, Daily Fuel, Gold and Silver Prices and Latest Stories — On NDTV Profit.