PFC acquiring 53pc stake in REC for Rs14,500 cr

Combined revenue of both PSUs amount to Rs50,000cr

DELHI: The Power Finance Corporation (PFC) has on Wednesday signed a Share Purchase Agreement (SPA) to acquire 103.94 crore equity shares of Rs10 each, of REC Ltd from the Government of India constituting 52.63 per cent of the paid-up share capital of REC Ltd, a leader in providing financial assistance to the power sector.

Subsequent to the PFC shareholders’ approval for the transaction, the board of directors of PFC considered the transaction and approved the acquisition of the 52.63 per cent shareholding of the President of India in REC Ltd at a cash purchase consideration of Rs139.50 per share with total acquisition cost of about Rs14,500 crore.

The closing price of REC on March 19, 2019 was Rs148.40. The consideration for the transaction is expected to be paid on March 28, 2019 and funds for the same have been arranged by PFC already, according to a company statement.

This is a major milestone achieved by PFC, which is now slated to become a promoter and the holding company of REC Ltd. The acquisition of REC Ltd was in pursuance to the in-principle approval dated December 6, 2018 from the Cabinet Committee on Economic Affairs (CCEA) for the strategic sale of 52.63 per cent of the paid up equity shareholding of REC held by the President of India (acting through Ministry of Power, Government of India) to PFC along with transfer of management control.

Both PFC and REC are Navratna central public sector enterprises with combined annual revenues of about Rs 50,000 crore and this acquisition is a step towards consolidation of companies operating in the same space.

“The acquisition would enable increased efficiencies in lending processes and policies across both the institutions and would create public value by offering better loan products to the power sector. The convergence between the entities as combined group entities would help the power sector reap benefits from a decentralized outreach of REC and a professional project finance expertise of PFC,” the official statement noted.

It also added that the ensuing diversification of assets of the group, as well as portfolio risk would help in resolution of stressed power sector assets of the group in a better and coordinated manner.

While Deloitte Touche Tohmatsu India LLP is the transaction advisor for the deal, L&L Partners (formerly Luthra & Luthra Law Offices) is the Legal Advisor and SBI Capital Markets Limited the valuer.

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