Boards of PFC, REC give nod to merger

NEW DELHI: The boards of Power Finance Corporation (PFC) and REC on Friday approved in-principle the merger of the two entities, while retaining the combined entity as a “govt company”.The board decision came days after finance minister Nirmala Sitharaman announced the restructuring of the two entities in her Budget speech on Sunday. “In line with the above and based on the information presented as well as detailed deliberations in this regard, the board of REC has accorded its in-principle approval to proceed with restructuring in the form of a merger of REC and PFC and to formulate a detailed merger proposal in accordance with applicable laws and regulations,” REC said in an exchange filing.

The merged entity will have a larger balance sheet and is part of govt’s plans to strengthen the NBFC structure. Govt officials said with most villages in India now electrified, REC’s terms of reference are no longer contemporary and the merger will help it focus on meeting the large funding needs of the power sector. Currently, REC finances the entire power sector — including generation, transmission, distribution and renewable energy — and has diversified into roads, metro and IT infrastructure.

In March 2019, govt had allowed PFC to acquire its 52.6% stake in REC for Rs 14,500 crore, turning the latter into a subsidiary. It also helped the Centre show the funds as “disinvestment receipts” and meet its receipts target for the year. Both public sector enterprises are non-banking infrastructure finance companies.REC share price fell 3% to Rs 373 on BSE, while PFC closed 1% higher at Rs 419.In her Budget speech last Sunday, Sitharaman said: “The vision for NBFCs for Viksit Bharat has been outlined with clear targets for credit disbursement and technology adoption. In order to achieve scale and improve efficiency in the public sector NBFCs, as a first step, it is proposed to restructure the Power Finance Corporation and Rural Electrification Corporation.”