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PFC could reduce its share capital post merger with REC

The government’s share in the merged entity would drop to about 42-43 percent after the merger took effect, taking the company outside the PSU fold
New Delhi: Power Finance Corporation (PFC) is thinking of reducing its share capital post merger with Rural Electrification Corporation (REC) in order to maintain its PSU character with 51 percent shareholding of the government. The government’s share in the merged entity would drop to about 42-43 percent after the merger took effect, taking the company outside the PSU fold.

Deloitte appointed as consultant

“Various options are being looked at by Deloitte which has been appointed as a consultant to see through the completion of the merger. The best-suited option looks like extinguishing or reducing the liability on any of its shares in respect of capital not paid up or cancelling any paid-up capital that is lost or unrepresented by available assets,” a government official aware of the development said. “The preference is for no cash mechanism that could allow us to maintain 51 percent holding for the government post merger. However, if need be, the company may also look at paying off any paid-up capital that is in excess of the requirements and that does not impact power sector financier’s lending,” the official added.

Report expected in 7-8 months

“The consultant is expected to take seven to eight months time to give its report on the merger and detail the roadmap. This would take the matter to last quarter of this year so the actual merger will happen only next year,” a PFC official said.

The backdrop

PFC purchased Centre’s 52.63 percent stake in REC in March this year as part of the government’s move to meet its disinvestment target of Rs 80,000 crores. The cost of the acquisition was Rs 14,500 crores. Rajeev Sharma, Chairman and Managing Director at PFC, had then said that next up on the agenda would be the PFC-REC merger which would happen in the ongoing fiscal year.