State-run financial institutions or public sector enterprises such as LIC, NTPC, NHPC may pick up a stake in the Power Finance Corporation (PFC) to prevent government shareholding in the power sector financier from falling below the threshold 51 per cent level post merger with the REC.
The PFC, which bought
52.63 per cent of government equity in REC last March, is looking to merge the
entity with itself. However, the exercise has been delayed by a year for want
As per current regulations, 51 per cent government holding is needed to maintain the PSU character of an organisation. Post the PFC-REC merger, the government shareholding in the merged entity is expected to fall to about 42-43 per cent taking the company outside the PSUs fold.
“Various options are being looked at by Deloitte which has been appointed as a consultant to see through the completion of the merger. The option before it is to extinguish or reduce the liability on any of its (government) shares in respect of capital not paid up or cancelling any paid up capital that is lost or unrepresented by available assets. But, equity dilution in favour of another PSU would also work well as it will keep direct and indirect holding of government above 51 per cent level in merged entity,” said a government official privy to the development.
Under the plan, power sector companies may be permitted to pick up to 10 per cent equity in the new entity created after REC merges with PFC. Companies such as NTPC, NHPC, or the PowerGrid Corporation may be the likely candidates for this investment.
Sources also said that government may also consider going in for investment by the Life Insurance Corporation (LIC) in the merged entity to maintain the PSU character of PFC.
Another option may be to get the LIC and one of the power sector PSUs to pick up 5 per cent each in the merged entity.
In March 2019, the PFC
acquired government’s 52.63 percent stake, or 104 crore shares, in another
state-owned power financier REC at Rs 139.5 a piece, along with the transfer of
management control. The cost of acquisition was
Rs 14,500 crore.
PFC chairman and managing director Rajeev Sharma had then said the PFC-REC merger would be next on the agenda and the process would be started in ongoing fiscal year.