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Informist, Tuesday, Apr. 7, 2026

 

--Fin min sources: Govt may get preference shares post PFC-REC merger

--Sources: PFC-REC pref shares to help govt hold 51% paid-up share capital

--Fin min sources: Govt may not have 51% voting rights in PFC-REC merged co

By Sagar Sen and Priyasmita Dutta

 

NEW DELHI – State-owned Power Finance Corp. Ltd. is likely to issue preference shares to the government once it merges REC Ltd. into itself, allowing the merged entity to retain government company status, a senior finance ministry official said. "Once the merger is complete, the overall shareholding of the government will fall in the resultant company, which the government does not want at all," the official told Informist.

 

"In order to maintain the government shareholding in the merged company above 51%, the company will allot preference shares to the government at face value. This allotment will also ensure that the government does not have to spend a lot of money if it had to buy equity at market value," the official said. 

 

Currently, the government holds 55.99% stake in PFC. In FY19, PFC had acquired the government's entire 52.63% stake in REC for INR 145 billion as part of the government's divestment initiative. Another official aware of the development said that during the merger, PFC's shares in REC would be extinguished, and a back-of-the-envelope calculation shows government holding in the merged company will fall to about 40%. The remaining stake in both companies is held publicly. 

 

The officials said that though preference shareholders do not have any voting rights in the company's regular business proceedings, the government, as the largest equity holder, would not have any problem in governing the company. According to The Companies Act, a "government company" is one in which not less than 51% of the paid-up share capital is held by the central government, or by any state government, and includes a company that is a subsidiary company of such a government company.

 

To be sure, the government will not formally have 51% voting rights in the current arrangement being finalised, but will hold 51% of the paid-up share capital, satisfying the condition for the merged entity to be a "government company".  

 

The second official said it is important for the merged company to retain government ownership as overseas lenders take comfort in the sovereign nature of its bonds and loans. "If all of a sudden the company ceases to be a government company, then the rating of the company will also take a hit," the official said. As on Dec. 31, PFC's consolidated loan asset book was INR 11.51 trillion, while REC's loan asset book was INR 5.82 trillion.

 

The Economic Survey for 2025-26 (Apr-Mar) had mooted the idea of the government amending the Companies Act and revising the definition of "government company" to allow stake sale beyond 51% while retaining "government company" status. However, the government is not actively looking at taking that path for this merger, the officials said.

 

In the Union Budget for FY27, the government proposed the restructuring of PFC and REC to achieve scale and efficiency in public sector non-banking financial companies. Following this, the boards of both companies gave an in-principle approval to proceed with restructuring in the form of a merger.

 

Both PFC and REC come under the administrative control of the power ministry. PFC finances projects related to the power sector and holds 20% market share. The Maharatna company is designated as a nodal agency for the revamped distribution sector scheme and ultra mega power projects, and bid process coordinator for independent transmission projects, according to the company's website. For the December quarter, PFC had reported a net profit of INR 47.63 billion on revenue of INR 146.56 billion. 

 

REC, another Maharatna company, finances power sector projects involved in generation, transmission, distribution, renewable energy, and new technologies. The company is the nodal agency for the revamped distribution sector scheme, as per the company's website. REC reported a net profit of INR 40.43 billion for the December quarter on total income of INR 149.11 billion.

 

At 1350 IST, shares of PFC were up 0.3% at INR 407.15 on the National Stock Exchange. REC's shares were trading at INR 328.35, up 0.3%.  End

 

Edited by Avishek Dutta

 

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