Government-owned financial institution, Power Finance Corporation (PFC), announced the acquisition of a controlling interest in REC Ltd., another state-owned power infrastructure lending firm. PFC completed the acquisition by paying the government about Rs.14,500 crore. This transaction also played a significant role in helping the government achieve its disinvestment target of Rs.80,000 crore for the fiscal year 2018-19. Following this acquisition, the government announced disinvestment receipts of Rs.85,000 crore.
As a part of the deal, PFC now owns 52.63% of REC Ltd. and has management control over the company. The acquisition was made at a price of Rs.139.50 per equity share. PFC used the cash inflows from its business to fund 70% of the price, the remaining 30% was financed through debt. The company was in negotiations with various banks to raise money for this transaction.
PFC is also hoping for a merger with REC Ltd. during the fiscal year 2019-20. However, it has to get directions from the government to proceed with this plan. If the merger is complete, PFC is likely to become the second-largest public sector lender in India after State Bank of India (SBI).
Rajeev Sharma, Chairman and Managing Director of PFC, stated that the consolidation of these two firms will help bring down the stressed assets in a faster way. He noted that this acquisition will help in raising funds easily at competitive interest rates. Moreover, the overall asset quality of the companies can be improved through this acquisition.
In India, state power distribution companies currently face a lot of issues relating to high purchase price, inadequate tariff hike, low collections, etc. This has resulted in a significant increase in stressed assets as the discoms have poor payment records. The consolidation of the two major power finance companies is expected to develop a collaborative approach that can improve lending policies and rates.
Source: Economic Times