PFC acquires govt stake in REC for Rs14,500 crore

The union cabinet has approved the sale of government’s entire 52.63 per cent stake in power sector financier REC Ltd to state-run peer Power Finance Corporation Ltd for Rs14,500 crore, thereby meeting the divestment target for the ongoing financial year. 

The board of PFC approved the acquisition of REC stake at a cash purchase consideration of Rs139.50 per share.
“PFC today signed a share purchase agreement to acquire 103.94 crore equity shares of Rs10 each, of REC Limited from the President of India constituting 52.63 per cent of the paid-up share capital of REC Limited. This is a major milestone achieved by PFC, who is now slated to become a promoter and the holding company of REC Limited,” PFC said in a public statement.
The Cabinet Committee for Economic Affairs (CCEA) had, in December 2018, approved the sale of central government's existing 52.63 per cent equity in REC to PFC along with the transfer of management control.
In its statement, PFC said post the shareholders’ approval, the board approved the acquisition at a cash purchase consideration of Rs139.50 per share with a total acquisition cost of about Rs14,500 crore.
The closing price of REC on 19 March, 2019 was Rs148.40 per share. The consideration for the transaction is expected to be paid on 28 March 2019 and funds for the same have been arranged by PFC already, said the company. “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.”
Deloitte Touche Tohmatsu India LLP was the advisor and L&L Partners (formerly Luthra & Luthra Law Offices) was the legal advisor for the transaction. SBI Capital Markets Limited is the Valuer.
“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. Further, the ensuing diversification of assets of the group, as well as portfolio risk would help in the resolution of stressed power sector assets of the group in a better and coordinated manner,” PFC said.