REC and PFC shares in focus after merger announcement; govt stake key hurdle, analysts say

Power Finance Corporation Ltd. (PFC) and Rural Electrification Corporation Ltd. (REC) shares are in focus on Monday, February 9, after the latest acquisition development.

The board of PFC and REC accorded its in-principle approval for restructuring in the form of a merger of the two firms. The merged entity will continue to remain as a "government company". The detailed merger scheme, once finalised, will be shared post requisite approvals.

During the Union Budget 2026, Finance Minister Nirmala Sitharaman had proposed to restructure PFC and REC.

PFC already owns 52.6% stake in REC. The Centre owns 56% stake in PFC.

Considering the share swap at the current market prices of PFC to acquire the remaining stake in REC, the Centre's holding in PFC will fall to 42%. The exchange filing stated that the merged entity will continue to remain as a "government company".

Further details regarding the structure of the merger, terms and other factors are awaited.

Meanwhile, PFC's total loan book, on a standalone basis, is at ₹5.69 lakh crore, while REC's is at ₹5.81 lakh crore. PFC reported a consolidated loan book of

₹11.51 lakh crore, up 7.7% in the third quarter from the previous year. In the second quarter, PFC's consolidated loan book had increased 10%, in the first quarter it was up 12.9% and in the preceding quarter it had increased 12%.

Emkay Global says

Brokerage Emkay Global said a merger at the current share prices-driven share swap would result in the Centre's stake of 42% in the merged entity. However, for the merged entity to qualify as a "government company" under the Companies Act 2013, the Centre's stake needs to be above 51%.

The brokerage said this leads to three possible scenarios:

• A large-scale 'buyback' by PFC and REC, with the promoters not participating


• A large-scale (350 billion at current price) capital infusion by the Centre in PFC via preferential issuance


• Amending The Companies Act, 2013, as envisaged in the Economic Survey 2025-26, to allow the Centre's stake to increase 26% in a 'government company'.

Irrespective of the route taken to merge the two companies, their business fundamentals do not change, Emkay Global said.

Also, a re-rating of the share is contingent on the growth catalyst that remains hinged on a pick-up in the state utilities-driven conventional thermal power capex, it added.

The analyst said that as far as regulatory limitations around the merged entity are concerned (lime a limit on a bank's exposure to a single borrower), the Centre is likely to ensure compliance or obtain regulatory forbearances.

Shares of PFC ended the previous trade session 0.6% up, while of REC ended 2.5% down.

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