The proposed acquisition of Power Finance Corporation (PFC) by state-run Rural Electrification Corporation (REC) would require the approval of banking regulator RBI and competition watchdog CCI, an official said.

The finance and power ministries have been holding hectic parleys for the proposed merger and acquisition between the two power sector companies, which are Non-Banking Finance Companies (NBFCs) providing funds for power projects.

Once the proposal is cleared by the power ministry, it would be taken to the cabinet for the final approval.

“Since both the companies operate in the same sector and are NBFCs, Competition Commission of India (CCI) and the Reserve Bank of India (RBI) nod would be required,” an official said. At the current market price, sale of 65.64 per cent government stake in PFC would fetch the government about Rs 15,000 crore.

The plan being worked out is, REC acquiring PFC and then merging the acquired entity with itself. A final decision is yet to be taken on how the acquisition plan would go through, the official added.

At the end of 2017-18, the total resources of REC stood at over Rs 2.46 lakh crore, of which reserves were Rs 33,515.59 crore. The net worth of the company was Rs 35,490 crore and ‘cash and bank balance’ was Rs 1,773 crore at the end of March 2018. PFC’s ‘reserves and surplus’ stood at Rs 37,221 crore, and ‘cash and bank balance’ stood at Rs 4,600 crore at the end of March 2018.

The deal, if it goes through, would help the government scale up its disinvestment proceeds. So far over Rs 32,000 crore has come into the disinvestment kitty from minority share sale in central public sector enterprises (CPSEs) and follow on offer of exchange traded funds, CPSE ETF and Bharat-22.

The REC-PFC deal is being considered on the lines of the acquisition of the government’s entire 51.11 per cent stake in oil refiner HPCL by state-owned ONGC in 2017-18. The government bagged Rs 36,915 crore from the stake sale.

Finance Minister Arun Jaitley had in the budget for 2017-18 said there were opportunities to strengthen CPSEs through consolidation, mergers and acquisitions. “By these methods, CPSEs can be integrated across the value chain of an industry. It will give them capacity to bear higher risks, avail economies of scale, take higher investment decisions and create more value for the stakeholders,” he had said.

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