PFC names consultants for merger with REC

New Delhi: State-run Power Finance Corporation Ltd. (PFC) has appointed RBSA Advisors as the valuation consultant and SBI Capital Markets Ltd as the merchant banker for the proposed merger of the company with REC Ltd, according to people aware of the development.

The appointments, to be made through the tendering process, are the next steps in the long-discussed amalgamation of the two power sector financiers. The advisers are expected to determine the valuation metrics and swap ratios.

The government announced in this year's budget its intention to achieve scale and improve efficiency in public sector non-banking financial companies (NBFCs). As a first step, it proposed restructuring PFC and REC.


Since the announcement, the shares of PFC have risen by 4.3%-on Monday they closed at ₹397.95 on the BSE-compared with the 9.9% drop the BSE Sensex has recorded in the same period.

Emails sent to PFC, RBSA and SBICAPS remained unanswered till the time of filing the report.

The boards of both companies, subsequently, approved a merger plan, stating that the new entity would remain a government company, clearing the air over ownership.

The Centre owns 55.99% stake in PFC but doesn’t directly own a stake in REC, formerly Rural Electrification Corp. PFC, though, owns a 52.6% stake in REC.

The government has formed a high-level committee along with a working group which will study the modalities and monitor the merger of the two companies.

By the end of December, PFC had an outstanding loan book of about Rs 5.70 lakh crore, while REC’s stood at about Rs 5.82 lakh crore.

The merger is aimed at creating a larger, more diversified lending entity with a stronger balance sheet and capital allocation.

“The merged entity’s exposure on a single balance sheet will be much higher, and it can give large-ticket loans amid higher capital strength,” one of the persons cited earlier said.

Under the Securities and Exchange Board of India (Sebi) regulations governing mergers and amalgamations of listed entities, companies are required to appoint an independent registered valuer to ensure fairness and transparency in determining the exchange ratio.

A Sebi-registered merchant banker is also mandated to issue a fair opinion on the valuation, which is submitted to stock exchanges and shared with shareholders.