PFC and REC Boards Approve Merger to Create INR 11 Lakh Crore Financing Entity

The boards of directors of Power Finance Corporation (PFC) and REC Ltd. have approved a scheme for the merger of REC into PFC, paving the way for the creation of one of India's largest government-owned power sector financing institutions with a combined loan book of more than INR 11 lakh crore.

The merger has been proposed under Sections 230 to 232 and other applicable provisions of the Companies Act, 2013. Under the scheme, REC will merge into PFC, with PFC becoming the surviving entity.

The proposed merger remains subject to several statutory and regulatory approvals, including consent from the shareholders and creditors of both companies, as well as approvals from relevant regulatory and government authorities. The scheme also requires that the merged entity continues to qualify as a Government Company under the Companies Act, 2013, with the Government of India retaining majority voting rights and control, either directly or indirectly.

As part of the merger, REC shareholders will receive 88 fully paid equity shares of PFC with a face value of INR 10 each for every 100 fully paid equity shares of REC with a face value of INR 10 each. The share exchange ratio has been determined based on a joint valuation report, while the record date for the share swap will be decided later by the boards of PFC and REC, as applicable.

Both companies have appointed a common set of transaction and legal advisors for the merger. Deloitte Touche Tohmatsu India LLP is serving as the transaction and tax advisor, while Cyril Amarchand Mangaldas is acting as the legal advisor.

For valuation, RBSA Valuation Advisors LLP was appointed by PFC and Ernst & Young Merchant Banking Services LLP by REC to prepare joint valuation reports. SBI Capital Markets and Nuvama Wealth Management were engaged by PFC and REC, respectively, to provide fairness opinions on the valuation reports.

The proposed merger is expected to strengthen the financial capacity of the combined entity and enhance its ability to support financing requirements across India's power and infrastructure sectors, subject to the completion of all approval processes.