Formalising the takeover, Power Finance Corporation Ltd
(PFC) has signed a Share Purchase Agreement to acquire 103.94 crore equity shares of Rs 10/- each, of Rural Electrification Corporation (REC) Limited from the President of India, constituting 52.63 percent of the paid-up share capital of REC Limited. PFC is now slated to become a promoter and the holding company of REC Limited.
The Cabinet Committee on Economic Affairs had given its nod to the strategic sale of 52.63 percent of the paid-up equity shareholding of REC held by the President of India (acting through the Ministry of Power) to PFC, along with a transfer of management control, on December 6, 2018.
PFC, REC have a combined turnover of Rs 50,000 cr
Both PFC and REC are Navratna Central Public Sector Enterprises (CPSEs) with combined annual revenues of about Rs 50,000 crores and this acquisition is a step towards the consolidation of companies operating in the same space, a statement released by PFC said.
Subsequent to the PFC shareholders’ approval for the transaction, the Board of Directors of PFC considered the transaction and approved the acquisition of 52.63 percent stake in REC Limited at a cash purchase consideration of Rs 139.50 per share. The total acquisition cost came to be around Rs 14,500 crores. The closing price of REC on March 19 was Rs 148.40 per share. The consideration for the transaction is expected to be paid on March 28 and funds for the same have been arranged by PFC already.
The acquisition would enable increased efficiencies in the lending process and policies across both the institutions and would create public value by offering better loan products to the power sector, the statement said. The convergence between the entities as combined group entity would help the power sector reap benefits from a decentralised outreach of REC and the 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.
For the acquisition transaction, Deloitte Touche Tohmatsu India LLP is the Transaction Advisor, L&L Partners (formerly Luthra & Luthra Law Offices) is the legal advisor and SBI Capital Markets Limited
is the valuer.