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Informist, Thursday, Apr. 30, 2026

NEW DELHI – Fitch Ratings Thursday affirmed the long-term foreign and local-currency issuer default ratings of Power Finance Corp. Ltd. and REC Ltd. at 'BBB-', the same as India's sovereign credit rating. The outlooks were left stable in Fitch's first review of the state-owned companies since they announced plans to merge in February.

REC is a subsidiary of PFC. Fitch says it looks through the holding structure, with both entities 'virtually certain' to keep getting central government support. The government would not dilute its control over the merged entity considering the policy importance of lending to the power sector, leading to the stable outlook of the rating at par with the sovereign, Fitch said. The ratings on the two companies' global medium-term note programmes and senior unsecured notes were also unchanged at 'BBB-'.

"While transaction details remain unclear, PFC and REC have confirmed that the merged entity will remain as a 'government company'," the ratings agency said in a release. "This indicates that the government will maintain its ownership above the 51% level required by the Companies Act and retain control of the merged entity."

PFC is likely to issue preference shares to the government once it merges REC into itself, allowing the merged entity to retain government company status, a senior finance ministry official told Informist earlier this month. Government control and oversight over key strategic decisions are likely to stay after the merger and the strong policy role the lender plays may even become stronger, Fitch said. 

The merged company would retain access to cheap funding, with the government allowing the utility lenders to raise funds while capital-gains-exempt bonds under Section 54EC of the income tax act in the past, according to the ratings agency. REC's loan book consists of 85% government companies as of December, with PFC's portfolio having a 75% share of government entities, both will no defaults from the sector. 

"Given the government's strong oversight, we expect PFC and REC to maintain sound financial health to comply with regulatory requirements and continue fulfilling their policy role," Fitch said. "We believe a weakening in financial strength to a level that would pressure the IDRs (issuer-default ratings) is less likely."

Potential rating upgrades or downgrades for both power-sector lenders are linked to India's sovereign credit rating, the release said. Fitch may also lower the rating if it sees the government's responsibility or incentive to provide credit support weaken.  End

Reported by Aaryan Khanna

Edited by Akul Nishant Akhoury

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