The respective boards of directors of Power Finance Corporation Ltd (PFC) and REC Ltd (REC) have approved the scheme of merger of REC into PFC.
The merger will create a financing entity with a loan book of over Rs.11 lakh crore (Rs.11 trillion), a release by REC said.
The scheme is conditional upon and subject to, inter alia receipt of all requisite approvals and consents required under applicable law including, approvals from the respective shareholders and creditors of both the companies, and all relevant regulatory and governmental authorities; and the merged entity continuing to qualify as a ‘Government Company’ under the Companies Act, 2013 and the Government of India continuing to retain majority voting rights and control in the merged entity (directly or indirectly).
Share exchange ratio
Pursuant to the merger scheme and valuation report, the share exchange ratio for the proposed merger of REC into PFC shall be 88 equity shares of PFC of Rs.10 each fully paid up for every 100 equity shares of REC of Rs.10 each fully paid up to be issued to the shareholders of REC as existing on a record date to be determined by the Boards of PFC and REC (as may be applicable) at a future date.
Rationale
In a regulatory filing, REC, while discussing the rationale of the proposed merger said that the merged entity would emerge as the Government’s principal institution for implementing power sector reforms and flagship programmes, serving as the primary vehicle for translating national policy objectives into measurable sectoral outcomes. By leveraging its enhanced scale, financial strength, and institutional capabilities, the merged entity would maximise the effectiveness, reach, and impact of Government initiatives, thereby accelerating the development and transformation of the power sector.
Advisors
Deloitte Touche Tohmatsu India LLP is acting as Transaction and Tax Advisor and Cyril Amarchand Mangaldas as the Legal Advisor, to both PFC and REC. Further, RBSA Valuation Advisors LLP was appointed by PFC and Ernst & Young Merchant Banking Services LLP was appointed by REC, for providing joint valuation reports. SBI Capital Markets was appointed by PFC and Nuvama Wealth Management was appointed by REC, for providing their respective fairness opinions on the joint valuation reports.