The state-run REC Ltd has suggested the government consider selling Power Finance Corporation’s (PFC) stake in the company to Power Grid Corp of India (PGCIL).
In a presentation made to the power ministry in the last week of June, REC suggested a non-banking public sector company acquire PFC’s stake in the company.
The meeting, chaired by power and renewable energy minister RK Singh, discussed the option of PGCIL acquiring PFC’s stake in REC.
The power ministry has asked REC to submit a proposal, a top bureaucrat told ET.
PFC had in March 2019 acquired the government’s 52.6% stake in REC for ₹14,500 crore to consolidate the two power sector lenders.
PFC, REC, and PGCIL did not respond to queries sent by ET. However, a senior PGCIL official said, “there is nothing on the table as yet.”
The government holds a 56% stake in PFC.
The PFC and REC merger is stuck on concerns that it may reduce financing to the power sector. “Since PGCIL is not in the lending business, REC said its merger will not have any impact on the lending,” a power ministry official said.
Before the stake acquisition, PFC and REC could each borrow up to 20% of a bank’s net worth. After PFC acquired a majority stake in REC, their combined credit exposure limit stands revised to 25% of a bank’s net worth.
Once they merge, the combined entity will be able to borrow only up to 20% of its net worth from a bank, restricting its ability to lend.
The power ministry had in 2018 opposed PFC’s acquisition of government stake in REC, reasoning the move will hurt the two sound Navratnas in the otherwise ailing sector.
It had also warned the Department of Investment and Public Asset Management (Dipam) that operational and administrative issues might crop up after the deal.
Dipam, however, had said such issues can be managed to create a large financing company for the power sector rather than having two central public sector units competing in the same space.
Post acquisition, PFC and REC have continued operations as separate entities.
Deloitte, which was appointed as consultant post-acquisition, had suggested a merger of the two companies. Also, DIPAM had advocated for a common chairman for both the companies to facilitate the merger.
