The boards of Power Finance Corporation (PFC) Limited and REC Limited have approved a merger scheme under which REC will be merged into PFC, creating a power-sector financing entity with an aggregate loan book of over ₹11 lakh crore.
In a statement on Tuesday, 30 June, the Ministry of Power said that the Board of Directors of both companies had approved the Scheme of Merger for the merger of REC, the transferor company, into PFC, the transferee company.
The merger scheme has been approved under Sections 230 to 232 and other applicable provisions of the Companies Act, 2013.
The scheme covers the merger of the two companies, along with their respective shareholders and creditors.
“The merger of REC into PFC shall create a financing entity with an aggregate loan book of over INR 11 lakh crore,” the ministry said.
The merger will not take effect immediately. The scheme remains subject to several approvals and conditions under applicable law.
According to the ministry, the scheme will require approvals from the respective shareholders and creditors of both companies. It will also need clearances from relevant regulatory and government authorities.
One of the key conditions is that the merged entity must continue to qualify as a government company under the Companies Act, 2013.
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The Government of India must also continue to retain majority voting rights and control in the merged entity, either directly or indirectly.
Under the proposed share exchange ratio, shareholders of REC will receive 88 equity shares of PFC for every 100 equity shares of REC held by them.
The ministry said the share exchange ratio has been fixed pursuant to the merger scheme and valuation report.
The equity shares of PFC will have a face value of ₹10 each and will be fully paid up.
The REC shares considered for the exchange will also have a face value of ₹10 each and will be fully paid up.
The shares will be issued to REC shareholders as existing on a record date.
The record date will be determined by the boards of PFC and REC at a future date.
PFC and REC are among the key public-sector financiers for India’s power sector.
The proposed merger will bring the two state-backed lending institutions under one entity, subject to completion of statutory, regulatory, shareholder and creditor approvals.
The ministry also named the advisors appointed for the transaction.
Deloitte Touche Tohmatsu India LLP is acting as the transaction and tax advisor, while Cyril Amarchand Mangaldas is acting as the legal advisor to both PFC and REC.
RBSA Valuation Advisors LLP was appointed by PFC and Ernst & Young Merchant Banking Services LLP was appointed by REC to provide joint valuation reports.
SBI Capital Markets was appointed by PFC and Nuvama Wealth Management was appointed by REC to provide their respective fairness opinions on the joint valuation reports.
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