Power
Finance Corporation Ltd. (PFC), on 20 March 2019, signed a Share Purchase
Agreement to acquire 103.94 crore equity shares of INR 10/- each, of REC
Limited from the President of India constituting 52.63% of the paid-up share
capital of REC Limited. This is a major milestone achieved by PFC, who is now
slated to become a promoter and the holding company of REC Limited.
The
acquisition of REC Limited was in pursuance to the in-principle approval dated
6th December 2018 from the Cabinet Committee on Economic Affairs for the
strategic sale of 52.63% of the paid-up equity shareholding of REC held by the
President of India (acting through Ministry of Power, Government of India) to
PFC along with transfer of management control.
Both
PFC and REC are Navratna Central Public-Sector Enterprises with combined annual
revenues of about Rs. 50,000 Crore and this acquisition is step towards
consolidation of companies operating in the same space.
Subsequent
to the PFC shareholders’ approval for the transaction, the Board of Directors
of PFC considered the transaction and approved the acquisition of the 52.63%
shareholding of the President of India in REC Limited, at a cash purchase consideration
of INR 139.50 per share with total acquisition cost of about INR 14,500 Crore.
The closing price of REC on 19th March, 2019 was INR 148.40 per share. The
consideration for the transaction is expected to be paid on 28th March, 2019
and funds for the same have been arranged by PFC already.
The
acquisition would enable increased efficiencies in lending processes and
policies across both the institutions and would create public value by offering
better loan products to the power sector. The convergence between the entities
as combined group entities would help the power sector reap benefits from a
decentralized outreach of REC and a professional project finance expertise of
PFC. Further, the ensuing diversification of assets of the group, as well as portfolio
risk would help in resolution of stressed power sector assets of the group in a
better and coordinated manner.
For
the acquisition transaction, Deloitte Touche Tohmatsu India LLP is the
Transaction Advisor, L&L Partners (formerly Luthra & Luthra Law
Offices) is the Legal Advisor and SBI Capital Markets Limited is the Valuer.