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Last Updated : Dec 05, 2018 10:33 AM IST | Source: Moneycontrol.com

Now, Centre asks PFC to acquire its 58% stake in REC for Rs 14,000cr: Report

Experts cautioned that the net worth of the acquiring company would fall drastically as it would have to finance the deal and may result in value disruption in the power and renewable energy

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In a surprise reversal from its earlier stance, the government now wants Power Finance Corporation (PFC) to acquire REC (erstwhile Rural Electrification Corporation) for Rs 14,000 crore, reports The Economic Times. Earlier, the government wanted REC to take over PFC.

The move would require Cabinet approval and may be considered as early as December 5, sources told the newspaper. The proposal is similar to Oil & Natural Gas Corporation’s (ONGC) acquisition of Hindustan Petroleum Corporation (HPCL) last fiscal.

This assumes importance as the Centre’s fiscal deficit has exceeded its FY19 budget estimate of Rs 6.24 lakh crore (or 3.3 percent of GDP) at the end of October on muted tax revenues and lower-than-targeted disinvestment proceeds. So far this fiscal, the government has been able to mobilise only Rs 32,247 crore of its Rs 80,000 crore disinvestment target.

Till as recent as last week, the government was considering an acquisition of PFC by REC followed by a merger, the report said. The move would have helped it garner higher proceeds given the government’s larger stake in PFC and higher market value.

The policy shift is said to be driven by feedback from government departments, including the Power Ministry, sources told the newspaper.

"The Power Ministry had flagged concerns of the impact of the deal on two sound Navratnas in an otherwise ailing power sector, but said if the Finance Ministry still wants to carry the exercise, then PFC should acquire REC," a senior government official told the newspaper.

In the past too, the Power Ministry had voiced concerns about operational and administrative issues that might emerge after the buyout, while the Finance Ministry wanted to create a large financing company for the power sector rather than having two state-run entities competing in the same space, the report said.

The government currently owns 58 percent and 66 percent stake in REC and PFC, respectively.

However, experts cautioned that the net worth of the acquiring company would fall drastically as it would have to finance the deal and may result in value disruption in the power and renewable energy, the report suggested. They added that the deal between the two non-banking financial companies would require RBI’s approval.
First Published on Dec 5, 2018 10:33 am
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