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Power Finance Corporation Gets High Nod for Rural Electrification

Power Finance Corporation Gets High Nod for Rural Electrification

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Power Finance Corporation (PFC) on Thursday gets high nod from the Cabinet Committee on Economic Affairs (CCEA) for the acquisition of Centre’s 52.63 per cent holding in Rural Electrification (REC) along with management control.

The government has a total 58.3 per cent stake in REC, remainder of which is part of Bharat 22 ETF and CPSE ETF.

The move will help the Centre meet its disinvestment target of Rs 800 billion for FY19.

The government said the acquisition intends to achieve “integration across the power chain, obtain better synergies, create economies of scale, and have enhanced capability to support energy access and efficiency to finance the power sector. It may allow for cheaper fundraising, with an increase in bargaining power for the combined entity.”

Finance Minister Arun Jaitley said he had announced in the Union Budget FY19 that multiple public sector enterprises working in one space should be merged or acquired. “This is on the same line. During the consultations, the committee of ministers accepted the proposal of the power ministry, which wanted PFC to be the holding company,” he said. Jaitley said the transaction would be over by the end of the financial year. However, he did not comment on the valuation.

“The PFC-REC deal will lead to synergies. They are now competing in the same space. This drives up the cost of borrowing for them. We are expecting that to reduce,” said a finance ministry official after the meeting.

PFC’s acquisition of government’s stake in REC makes more financial sense for both the companies. Officials in the Department of Investment and Public Asset Management (DIPAM) had backed a proposal by REC to buy the Centre’s 65.6 per cent stake in PFC. The Centre’s stake in PFC is valued at nearly Rs 160 billion, while its 58.3 per cent stake in REC is valued at Rs 120 billion.

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