PFC’s takeover of REC will not have negative financial impact: CMD

Cabinet Committee on Economic Affairs had approved a plan in December by Power Finance to purchase a majority stake in REC

New Delhi: Power Finance Corp (PFC), Chairman and Managing Director (CMD) Rajeev Sharma assuaged concerns over PFC's takeover of the government's 52.63 percent stake in Rural Electrification Corporation (REC), saying that the acquisition will not have an impact on the financials of the company. The Cabinet Committee on Economic Affairs had approved a plan in December by Power Finance to purchase a majority stake in REC. The government-controlled lender is expected to continue as a separate entity.

The non-banking finance company has been receiving queries from various investors with respect to capital adequacy following the transaction.

'All regulatory approvals are in place'

"I do not see a negative impact on my financials. Very recently, we have received approval from Reserve Bank of India also. So, all regulatory approvals are in place for this deal. As there are rumours in the media, our capital adequacy is increasing and we have reached 19 percent capital adequacy ratio," Sharma told ET Now in an interview.

"In tier-1 capital, we are having 16 percent and we are trying to maintain better capital adequacy ratio through various means like tying up with various banks for tier-2 capital and we are regularly monitoring our ongoing projects which we have funded. Once they are commissioned, the risk weight comes down to 50 percent."

Stressed assets will stay with PFC

While noting that REC's stressed assets are going to stay with PFC, Sharma said that some percentage of these assets might see a reversal after resolution. "REC is a consortium partner in most of the private sector projects. So, most of the stressed assets of REC is also with us and they have also made a provision around 48 percent in all these stressed assets. I do not see any further provisioning required either in REC case or in PFC case because we have made a provisioning of 52 percent," he added. "These stressed assets will fetch a better rate in the market. In one case, we were getting around Rs 3,500 crore but now a new bidder has come and he is offering me around Rs 4 crore per megawatt."

PFC will not extend open offer to REC's minority holders

Sharma added that Power Finance Corp has no plans of extending the open offer to the minority stakeholders for its deal with REC.

"It is not there but as I told you that we are already going ahead with the proposal in accordance with the SEBI guidelines and whatever approvals were required have been received already. Now REC is taking the consent from the foreign currency lender and that is pending now," he said.

Credit rating

Touching upon the apprehension aired by credit rating agencies on the merger, Sharma said, "We are regularly in touch with international rating agencies as well as domestic rating agencies and we have explained to them very clearly the efforts being made by PFC in this direction."