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Icra places long-term rating of AAA for PFC, REC debt plans under watch

The agency has also reaffirmed the rating of A1+ to the short-term borrowing programme of the two companies

Shreya Jai  |  New Delhi 

Icra places long-term rating of AAA for PFC, REC debt plans under watch

Credit has placed the long-term rating of for various debt programmes of Power Finance Corporation (PFC) and Rural Electrification Corporation (REC) under watch, with developing implications. The move comes after the Centre gave ‘in principle’ approval for strategic sale of its existing 52.63 per cent of the total paid-up equity share-holding in to PFC, along with transfer of management control. The agency has also reaffirmed the rating of A1+ to the short-term borrowing programme of the two "The ratings for drew significant strength from its sovereign ownership, and with the proposed acquisition by - the management control and ownership would be transferred to Thus, PFC's own credit profile would have a bearing on REC's rating, and the former's own capitalisation profile is likely to be affected after the proposed acquisition," said in its latest report.

It said would incrementally be dependent on for raising external capital, if any, thus constraining the overall capitalisation profile for the two entities together.

In Icra's opinion, the proposed acquisition by PFC is likely to affect its capitalisation profile adversely as PFC would have to knock off its proposed investments in REC from its net owned funds, for capital adequacy calculations. The modalities for the acquisition are yet to be finalised, and would be monitoring the events and would take suitable rating action once more clarity emerges, the agency said.

Last week, the Cabinet Committee on Economic Affairs approved the strategic sale of the Government of India’s existing 52.63 per cent of total paid-up equity shareholding in REC to PFC along with transfer of management control.

The government said the acquisition intended to achieve "integration across the power chain, obtain better synergies, create economies of scale and have enhanced capability to support energy access and energy efficiency by improved capability to finance power sector. It may also allow for cheaper fundraising with increase in bargaining power for the combined entity."

First Published: Thu, December 13 2018. 02:52 IST
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