PFC board clears merger with REC to boost scale, efficiency of NBFCs

Power Finance Corporation's board has approved an in-principle merger with subsidiary REC Ltd, following the government's Budget push to restructure public sector NBFCs

State-owned power sector financier Power Finance Corporation (PFC) announced on Friday that its board has approved the company’s merger with subsidiary REC Ltd. This is part of a larger plan of the government to boost efficiency of non-banking finance companies (NBFCs). 

PFC had in March 2019 acquired 52.63 per cent of the government’s holding in REC Ltd for ₹14,500 crore after receiving an in-principle approval of the Union cabinet and the two entities are currently operating as holding and subsidiary companies. 

In her Budget speech on February 1, Finance Minister Nirmala Sitharaman had said the government has outlined the vision for NBFCs for Viksit Bharat with clear targets for credit disbursement and technology adoption. In order to achieve scale and improve efficiency in the public-sector NBFCs, as a first step, it is proposed to restructure the PFC and REC, she had said. 

“The Board of Directors of PFC took note of the budget announcement and accorded its in-principle approval for restructuring in the form of a merger of PFC and REC, while ensuring that the merged entity continues to remain a government company under the Companies Act, 2013 and other applicable laws,” PFC said in an exchange filing, post a meeting of its board on Friday. 

It added that the detailed merger scheme once finalised shall be shared after requisite approvals. 

Experts welcomed the government’s strategy to merge the two companies saying the restructuring is expected to augur well for the availability of debt financing to clean energy projects. “The merger is definitely beneficial not just for the combined entity but for the entire power sector and specifically for the renewable energy sector,” said Santosh Kamath, managing director at accounting and consultancy firm Alvarez & Marsal. 

He added that this move would boost the balance-sheet strength of PFC because of the sheer increase in size following the merger, and also the overall ability to lend to big-sized projects will be enhanced, and that is a necessity given the increasing size of the renewable energy industry. 

PFC is a public-sector enterprise registered with the Reserve Bank of India (RBI) as an NBFC since 1990, and was declared as a public financial institution (PFI) in 2010. The company provides financial products and services from the project conceptualisation stage to the post-commissioning stage for clients in the power sector. PFC is also a nodal agency for various central government schemes in the power sector, including Ultra Mega Projects, Integrated Power Development Scheme, and Independent Transmission Projects.

 

Green light

• PFC-REC merger decision is part of a larger plan by the government to boost efficiency of NBFCs
• PFC said the merged entity will remain a government company under the Companies Act, 2013
• The merger aligns with the government’s Viksit Bharat vision for NBFCs
• It focuses on higher credit disbursement and technology adoption
• Experts say the restructuring could improve availability of debt financing for clean and renewable energy projects