Power Finance Coporation (PFC), REC Ltd Shares Down After Boards Clear Merger; Share Swap Ratio Set at 88:100

Mumbai, June 29: Shares of state-owned power financiers Power Finance Corporation (PFC) and REC Ltd came under pressure on Monday after their boards approved the long-awaited merger scheme, with investors reacting to the final share exchange ratio. PFC share price declined nearly 2% in early trade, while REC share price also traded lower after the companies announced that REC shareholders will receive 88 equity shares of PFC for every 100 REC shares held. 

The merger is a key part of the Centre’s strategy to consolidate public sector financial institutions and create a larger, more efficient infrastructure financing entity. Once completed, the combined company is expected to have a loan book of over Rs 11 lakh crore, making it one of India’s largest infrastructure lenders. As of writing, PFC was down 1.9% at Rs 424 and REC was up 0.07% at Rs 365. 

Share swap ratio approved 

REC went down before flatlining as news of its merger spread across markets. Source: NSE 

Under the scheme approved by the boards, REC shareholders will receive 88 equity shares of PFC for every 100 shares they own in REC. The exchange ratio has been determined based on valuation reports prepared by independent experts and fairness opinions obtained by both companies. 

As part of the merger, REC will be amalgamated into PFC, with all its assets, liabilities, contracts, employees and business operations transferring to the merged entity. Following the completion of the transaction, REC will cease to exist as a separately listed company. 

The companies said the merger is expected to simplify the group structure, improve operational efficiency and enhance their ability to finance India’s growing power and infrastructure requirements. 

Regulatory approvals awaited 

The merger is subject to multiple approvals, including those from shareholders, creditors, stock exchanges, the Securities and Exchange Board of India (SEBI), the Reserve Bank of India (where applicable), the National Company Law Tribunal (NCLT) and other statutory authorities. 

The government had earlier secured the President’s approval for the merger proposal, paving the way for both companies to finalise the scheme. The consolidation is targeted to be completed by April 1, 2027, subject to regulatory clearances. 

PFC has been REC’s parent since 2019 after acquiring the government’s majority stake in the company. Despite the ownership structure, both lenders have continued to operate independently, often competing in the same segments of the power financing market. 

What the merger means 

The merger is expected to create a stronger balance sheet, improve capital allocation and reduce operational overlap between the two companies. Analysts believe the combined entity will enjoy greater financial flexibility, improved access to capital markets and enhanced lending capacity to support investments in power generation, transmission, distribution and renewable energy. 

While the strategic rationale behind the merger has largely been viewed positively, investors appeared cautious following the announcement of the swap ratio, leading to declines in both stocks. Market participants are now expected to closely monitor the timeline for regulatory approvals and integration, as well as the financial impact of the merger on shareholders of both companies. 

With the merger process now formally underway, the focus will shift to the execution phase and whether the combined entity can unlock the operational synergies and scale benefits envisioned by the government. 

Source:

• https://www.nseindia.com/get-quote/equity/RECLTD/REC-Limited
• https://www.nseindia.com/get-quote/equity/PFC/Power-Finance-Corporation-Limited