The boards of state-owned Power Finance Corporation (PFC) and REC Ltd have approved a scheme for the merger of REC into PFC, creating a significantly larger financing institution for India's power and infrastructure sectors. The merger is subject to regulatory, shareholder, and creditor approvals.
Merger Details and Share Exchange Ratio
In separate exchange filings on Saturday, both companies confirmed their boards had approved the scheme of merger by absorption under Sections 230 to 232 of the Companies Act, 2013. Under this scheme, REC will merge into PFC as the transferee company. REC will be dissolved without being wound up upon the merger becoming effective. Eligible REC shareholders will receive 88 equity shares of PFC for every 100 equity shares of REC held on the record date. The merger will take effect from the appointed date specified in the scheme.
Combined Entity's Scale and Rationale
In a joint press release, the companies stated that the proposed transaction would create "a financing entity with an aggregate loan book of over Rs 11 lakh crore." REC said the scheme remains subject to "the necessary regulatory and other approvals" and will be filed with stock exchanges for no-objection letters under SEBI Listing Regulations. The merged entity "would emerge as the Government's principal institution for implementing power sector reforms and flagship programmes," benefiting from "improved balance sheet strength, stronger capital base, and higher operational efficiencies." The combined entity is better positioned to finance renewable energy, green hydrogen, energy storage, small modular nuclear reactors, and grid modernisation, while strengthening borrowing capacity and improving credit flow across the power sector.
Valuation and Additional Fundraising
The share exchange ratio was determined based on a joint valuation report by Ernst & Young Merchant Banking Services LLP and RBSA Valuation Advisors LLP, supported by a fairness opinion from Nuvama Wealth Management Ltd. Separately, REC's board approved a proposal to raise up to Rs 1.40 lakh crore through private placement of secured or unsecured non-convertible bonds or debentures in one or more tranches over one year, subject to shareholder approval at the ensuing annual general meeting.
Conditions and Approvals
The merger is contingent on approvals from shareholders, creditors, and relevant regulatory authorities, and on the merged entity continuing to qualify as a government company with the Government of India retaining majority voting rights and control.
