Disinvestment: PFC gets Cabinet nod to buy REC

By: | Published: December 7, 2018 4:40 AM

At the price of Rs 103.95 a share (BSE) on Thursday, sale of 52.63% stake in REC is worth around Rs 10,804 crore.

It, however, will involve major market borrowings by the buyer PSU — in this instance, PFC — and so may put pressure on bond yields.

The Cabinet on Thursday gave the ‘in-principle’ approval for strategic sale of the Centre’s 52.63% stake in Rural Electrification Corporation (REC) to Power Finance Corporation (PFC). The deal, similar to ONGC’s purchase of the government’s stake in HPCL last year, would be crucial for the Centre to meet this year’s ambitious disinvestment target of Rs 80,000 crore. It, however, will involve major market borrowings by the buyer PSU — in this instance, PFC — and so may put pressure on bond yields.

Though the details of the deal, including the pricing methodology are to be worked by a ministerial panel headed by finance minister Arun Jaitley, the transaction, according to sources, is expected to fetch the Centre about Rs 14,000-Rs 15,000 crore, at a hefty premium of around 35% over RE’s current market price. The minister’s panel would work out the details of the transactions based on the recommendations of a committee of secretaries, Jaitley said after the CCEA meeting. Post-acquisition, REC would be a subsidiary of PFC.

At the price of Rs 103.95 a share (BSE) on Thursday, sale of 52.63% stake in REC is worth around Rs 10,804 crore.

For the sale of the Centre’s HPCL stake to ONGC last year, reference valuation was at 14% premium, which fetched the Centre a whopping Rs 36,915 crore. The upstream oil firm financed the deal with market borrowing of Rs 25,000 crore.

 

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