PFC, REC shares fall up to 2% after boards approve merger through share-swap deal

Shares of Power Finance Corporation (PFC) and REC (formerly Rural Electrification Corporation) remained in focus on Monday after the boards of the two state-owned lenders approved a merger scheme under which REC will be amalgamated with PFC through a share-swap arrangement.

Under the approved scheme, REC shareholders will receive 88 equity shares of PFC for every 100 equity shares of REC held, as on the record date, which is yet to be determined.

Reacting to the news, shares of PFC fell as much as 1.96% to ₹424 on the BSE, dragging its market capitalisation to ₹1.4 lakh crore. Meanwhile, REC shares declined 0.27% to ₹363.55, with the company's market capitalisation standing at ₹95,730 crore.

Meanwhile, the equity benchmarks – Sensex and Nifty – were trading marginally higher by 0.1% each, supported by healthcare and pharma stocks.  

"The Board of Directors of PFC and REC approved the Scheme of Merger (Scheme) for merger of REC (Transferor Company) into PFC (Transferee Company) and their respective shareholders and creditors, under Sections 230 to 232 and other applicable provisions of the Companies Act, 2013," PFC said in a statement.

Following the merger, the combined entity will have an aggregate loan book exceeding ₹11 lakh crore, creating one of the country's largest power sector financing institutions.

"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," PFC said.

The company added that the merger will also be subject to the merged entity continuing 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.

The board approvals come weeks after the President gave the go-ahead for the merger, paving the way for the consolidation of the two state-owned power sector financiers nearly seven years after PFC acquired the government's controlling stake in REC.

In March 2019, PFC completed the acquisition of the Centre's 52.63% stake in REC for about ₹14,500 crore, making REC its subsidiary. The proposed merger marks the next step in integrating the two public sector lenders.

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