Power Finance Corporation Managing Director Rajeev Sharma on Monday dismissed speculations on the value of the merger deal with Rural Electrification Corporation.

While the deal is expected to be closed by the end of the current fiscal, the transaction price has not been finalised yet and price determination is under way, Sharma said in a media conference in Mumbai on Monday.

“On the pricing front, there are lot of speculative numbers floating in the market, but PFC would like to state that the transaction price has not been finalised yet and price determination is under way,” he said.

Sharma said PFC has received all regulatory approvals required for the deal, including those from SEBI, Competition Commission of India and RBI.

Valuations made

According to Sharma, the Department of Investment and Public Asset Management (DIPAM) has already appointed a valuer for valuation of REC while PFC is also independently getting the valuations of REC done.

“Based on the valuations arrived, the pricing will be mutually decided by GoI and PFC. I wanted to clarify that the pricing for the transaction shall be as per the SEBI guidelines,” Sharma said.

The merger of two largest state-controlled lenders to the power sector will create a common platform for power sector financing, he said.

Sharma said PFC will benefit through wide spread geographical reach of REC and will also be able to leverage the expertise of REC in distribution and transmission space and maximise its growth. REC, on the other hand, will be able to leverage the expertise of PFC in the power generation space, he said adding that the merger will help adopting a “synchronised approach” for resolution of stressed assets.

PFC plans to fund the deal through debt from the market as well as payments received on loan assets from borrowers, including interest, Sharma said. PFC is already in discussions with the lenders and it sees no issues whatsoever on this front, going forward, he added.

Capital ratio

He said post-acquisition of REC, PFC envisages an impact on its capital ratio, as it will have to reduce its investment in REC which exceeds 10 per cent of owned fund from the tier-I capital as required under the RBI guidelines. However, PFC is continuously initiating appropriate actions to ensure that its capital ratio adhere to the regulatory thresholds post the deal.

PFC is in the process of tying up subordinate debt for enhancing Tier II capital. “PFC is confident that it will not only meet the 15 per cent minimum capital adequacy required by the RBI but also has sufficient capital to sustain its future growth,” Sharma said.

The Cabinet Committee on Economic Affairs (CCEA) has cleared the strategic sale of 52.6 per cent stake in REC to PFC along with transfer of management control, in December last year. The deal is expected to fetch the exchequer around ₹15,000 crore and help the government meet its ₹80,000-crore disinvestment target for the current fiscal.

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