New Delhi: Power Finance Corporation (PFC) will borrow Rs 7,000 crores from domestic banks to fund its acquisition of Rural Electricity Corporation (REC) and negotiations in this regard are already underway, sources said.
What are PFC other options?
Since the Power Finance Corporation is not likely to be able to raise the required funds through issue of shares this year, it is considering a slew of measures to fund the Rs 14,000 crore buyout as well as manage the capitalisation issue. An official familiar with the development said that the state-owned company is going to moderate its dividend payout as well as disburse loan accounts this financial year. It is also relying on a special dividend from REC after the acquisition.
Rs 500 cr will be released through the merger of PFC Green Energy
About Rs 500 crore capital is expected to be released by the end of this month through the merger of the company’s renewable energy arm PFC Green Energy. “All these measures along with unwinding of its stressed assets should help the company in sailing through the buyout of REC,” he said.
“PFC borrowed Rs 77,000 crore from the market last FY and normally borrows Rs 65,000-70,000 crore in a year. Therefore, it should not have liquidity concerns while raising funds for the operations and acquisition deal,” he said.
PFC in a better position to manage risk
The source said due to higher capital adequacy and bigger balance sheet, PFC is in a better position to manage the risk on capitalisation ratios. “PFC may have to raise tier-II capital, which is a normal market borrowing in the form of subordinated debt. The company has informed us that being a regular wholesale market borrower this should not be a significant challenge,” a MoF official said.
Credit rating agencies have put the company on credit watch after the announcement of the deal. Moody’s Investor Service Thursday said it has placed the ratings of PFC and REC on review for downgrade. ICRA has placed debt programmes of both companies under watch till valuation of the deal.
The Union Cabinet last week approved the sale of government’s stake in REC to PFC along with the transfer of management control, in a deal estimated to raise over Rs 14,000 crore disinvestment proceeds.
PSU Watch is a business news brand of 27 Frames Communications LLP. It places the spotlight on PSUs, Governance, Bureaucracy, Defence and Public Policy as the sector traverses through a period of radical change.