The Cabinet Committee of Economic Affairs (CCEA) on Thursday approved Power Finance Corporation’s (PFC’s) purchase of the government’s 52.63 per cent stake in Rural Electrification Corp (REC). The transaction would include the purchase of payback equity shares by PFC and transfer of management control to the same.
Finance Minister Arun Jaitley said he had announced in his Union Budget for 2018-19 that multiple public-sector enterprises working in the same space should be merged or acquired. “This is on the same lines. During the consultations, a committee of ministers accepted the proposal of the power ministry, which wanted PFC to be the holding company,” he said. The minister said the transaction would be over by the end of this financial year. He did not comment on the valuation.
Business Standard had reported on Wednesday that the power ministry believed PFC acquiring the government’s stake in REC made more financial sense for both companies, while officials in Department of Investment and Public Asset Management (DIPAM) backed a proposal for REC to buy the Centre’s 65.6 per cent stake in PFC, as that would help the exchequer garner more proceeds.
The Centre’s stake in PFC is valued at nearly Rs 160 billion, while its stake in REC is valued at Rs 120 billion. The government will definitely look to get a premium on any deal. In case of REC acquiring PFC, the centre would want a deal size of more than Rs 200 billion, sources said.
Senior power ministry and DIPAM officials, besides representatives from REC and PFC, met Jaitley last week to discuss both proposals.
PFC is the power sector’s leading financier which is currently battling NPA threat from close to 14,000 Mw of power assets. REC, on the other hand, has been at helm of the government’s key energy access projects, the recent being the ambitious SAUBHAGYA project for 100 per cent household electrification.
The Centre’s 2018-19 disinvestment target is Rs 800 billion. To date, DIPAM has garnered Rs 322 billion, including the latest tranche of CPSE ETF, which raked in Rs 170 billion. Any deal between PFC and REC would certainly boost the chances of reaching or even exceeding the target, just like last financial year.
In 2017-18, against a budgeted target of Rs 725 billion, DIPAM had raked in a record Rs 1 trillion. A big portion of that was ONGC’s blockbuster acquisition of Hindustan Petroleum which garnered Rs 396 billion on its own for the government, and took DIPAM to a record disinvestment realisation. In REC-PFC, the centre is hoping for similar situations where a single deal would help take it over the line.