Summary:
PFC and REC have approved their merger to create India’s largest power financing NBFC with a combined loan book of over ₹11 lakh crore. REC shareholders will receive 88 PFC shares for every 100 REC shares held, subject to regulatory approvals. The merger is expected to be completed by April 2027, while REC’s board also approved raising up to ₹1.4 lakh crore through bonds.
Stocks of publicly owned firms Power Finance Corporation (PFC) and REC Ltd stayed downbeat on Monday following approval of the highly awaited merger plan by the board of both entities, leading to formation of India’s largest power financing non-banking financial company (NBFC) with a combined loan portfolio exceeding ₹11 lakh crore.
The stock price of PFC was down almost 2% in early trading session, dropping by 1.83% to ₹424.75, whereas the stock of REC fell 0.32% to ₹363.50. Stocks responded after announcement by both entities on late June 28 that their respective board had approved Scheme of Merger under Sections 230 to 232 of the Companies Act, 2013 wherein REC would be merged with PFC.
Share Exchange Ratio Fixed at 88:100
In accordance with the merger scheme that has been approved, the equity shareholders of REC will get 88 equity shares of PFC fully paid up with a face value of ₹10 each in lieu of 100 equity shares of REC fully paid up with a face value of ₹10 each. The ratio of exchange has been arrived at on the basis of the joint valuation done. The record date will be announced soon.
Merger Subject to Regulatory Approvals
The following are some of the approvals required for this proposed merger in terms of statutes and regulations: Shareholder approvals, creditor approvals and government approvals among others. Furthermore, the firms made it clear that the conditions of the merger will be based on the requirement for the merged firm to continue meeting the requirements of being a Government company under the Companies Act, 2013, where the Indian Government retains a majority voting right and control of the entity.
According to an indicative roadmap reviewed earlier, the regulatory clearances are expected in early 2027, while the merger is expected to become operational from April 1, 2027.
Largest Power Sector Financing Entity
The objective behind the merger is to create a more efficient public sector financing institution having a consolidated loan book worth more than ₹11 lakh crore. It is expected that through this merger, there will be efficiency gains and increased scale along with an enhanced capacity for lending in the Indian power sector financing environment.
This comes after Finance Minister Nirmala Sitharaman had proposed restructuring PFC and REC in the budget speech of Union Budget 2026 as a step towards making these entities efficient and scaled-up in the public sector NBFC space. The Ministry of Power had earlier this month notified REC that the President of India has approved the merger.
Advisors Appointed for the Transaction
As per the announcement, Deloitte Touche Tohmatsu India LLP has been appointed as the transaction and tax advisor for both the companies while Cyril Amarchand Mangaldas is the legal advisor to PFC and REC.
The joint valuation report has been filed by RBSA Valuation Advisors LLP for PFC and Ernst & Young Merchant Banking Services LLP for REC. The fairness opinion for PFC and REC has been given by SBI Capital Markets and Nuvama Wealth Management respectively.
In a separate development, the board of directors of REC Limited has approved the issue of secured or unsecured non-convertible bonds or debentures for an aggregate amount up to ₹1.4 lakh crore in one or more tranches within one year, subject to the approval of shareholders at the next Annual General Meeting of the Company and approval of competent authority.
