Even as the government plans to raise more funds through divestment to bridge its fiscal deficit, there seems to be a concern among the management of Power Finance Corporation (PFC) that further divestment by the government could lead to breaching of government?s 51% minimum holding limit.
The fear is that this would adversely impact PFC’s ability to raise cheaper funds at a time when the domestic power sector needs liberal funding support.
?The process of dilution of the government’s holding in the company to 51% would get accelerated in case the government further divests 10% equity,? PFC chairman Satnam Singh said on the sidelines of a press conference to announce the company’s quarterly results.
?In case the government asks for our suggestion, we will say this is not in the interest of the domestic power sector,? Singh added.
PFC, a non-banking finance company (NBFC), has applied for the status of an Infrastructure Finance Company (IFC) that would raise capital adequacy ratio requirement for the company from10% to 15%. The company expects to secure the status in a month’s time from the Reserve Bank.
The Apex bank created this third category recently to allow infrastructure sector NBFC like PFC more flexibility in lending.
PFC’s capital adequacy ratio currently stands at 17.38%, which is enough to comply with the existing 10% norm. However, the company might need further infusion of equity when it becomes an IFC.
However, if the government also decides to divest its 10% stake in the company along with fresh issue of 10% shares, government’s holding would come down uncomfortably close to the minimum 51% holding that would be required to maintain the PSU character of the company. That would foreclose the option for PFC to raise further equity, constraining fund flows to the power sector which is in a growth mode.
PFC?s net profit for the first quarter of 2011 fiscal has increased 18% to Rs 652 crore. Its loan assets grew 29% to Rs 85,597 crore. Loan disbursements grew 87% during the period.