PFC, REC shares fall after merger process advances

Shares of Power Finance Corporation

(PFC) and REC Limited are trading lower on Monday, May 18, after PFC moved a step closer towards its proposed merger with REC following board approval to seek formal clearance from the President of India for the transaction.

In a stock exchange filing, PFC said its board has approved placing the merger proposal of REC with PFC before the President of India for approval.

The board has also authorised PFC Chairman and Managing Director Parminder Chopra to initiate the process and seek the President’s approval for the proposed merger.

The transaction will be executed based on a share swap ratio that will be determined by valuers appointed for the deal.

PFC further clarified that the merged entity will continue to retain its status as a government-owned company. The company added that this may also involve issuance of securities or capital infusion by the central government, if required.

The proposed merger is still subject to final board approval along with various regulatory clearances and statutory approvals.

Once completed, all assets and liabilities of REC will be transferred to PFC, while REC will cease to exist under the provisions of the Companies Act.

The merger plan was first announced in the Union Budget on February 1 as part of the government’s broader push to consolidate state-owned financial institutions operating in the power and infrastructure financing space.

Both PFC and REC had earlier granted in-principle approval for the merger proposal on February 6.

If the transaction goes through, the combined entity would emerge as one of India’s largest infrastructure financing institutions with exposure across power generation, transmission, renewable energy and infrastructure lending.

Currently, the government owns a 55.9% stake in PFC and a 52.6% stake in REC, while the remaining shareholding is held by public investors.