The way for the merger of two big power sector government companies, Power Finance Corporation (PFC) and Rural Electrification Corporation (REC), has now been completely cleared. The President has given his final approval to the proposal to merge these two ‘Maharatna’ companies. After this important decision, REC’s separate existence will completely end and its entire business, assets and liabilities will go to the account of PFC. The main objective of this big initiative of the government is to create a very strong and large financial institution that provides loans to the energy sector, which can fund the country’s electricity needs in a better way.
Preparations started seven years ago
The story of uniting these two giant companies did not start suddenly. Its strong foundation was laid in March 2019 itself. At that time, Power Finance Corporation had purchased 52.63 percent stake of REC from the government under a big deal. The total price of this big deal was fixed at Rs 14,500 crore. Market experts had already received a signal from that time that these two financial institutions would be completely integrated in the future. Now with the formal approval of the President, a big step has been taken in that direction.
REC’s independent existence will end
The legal process of this integration is going to progress rapidly. According to the official information given to the stock exchanges, this merger will be completed under the prescribed rules of Company Law. Once this paperwork is completed, no separate company named REC will exist in the stock market or the financial world. The books of REC, all its assets, debt burden i.e. liabilities, everything will be officially transferred in the name of PFC. After this, the entire work will be conducted only under the flag of PFC.
Market eyes share swap ratio
Even in the general budget presented this year, Finance Minister Nirmala Sitharaman had clearly indicated the restructuring of these two companies. Market experts believe that instead of two separate companies, the functioning of a single giant company will drastically reduce administrative expenses and will also increase the efficiency of work. However, the most important question for retail investors at this time is what will be the swap ratio of the merger. In fact, how many shares of PFC will REC shareholders get in exchange for their old shares will decide how much profit investors get. The further movement of both the shares will depend on this decision.
Condition of both the shares before merger
For investors who have invested money in these companies, it is also important to see the current performance of the shares. At present REC shares are trading at the level of Rs 348.80. It has shown marginal growth in the last six months, whereas in the period of one year this stock has given a loss of 17.5 percent to the investors. In the longer term the picture changes; This stock has jumped 133 percent in three years and 183 percent in five years.
On the other hand, PFC shares are currently priced at Rs 431.30. This stock has shown a spectacular growth of about 25 percent in the last six months alone. Although the business has been flat for one year, this stock has given a strong return of 170 percent in three years. If we talk about five years, PFC shares have seen a bumper jump of 307 percent.
Disclaimer: This article is for information only and should not be considered as investment advice in any way. TV9 Bharatvarsh advises its readers and viewers to consult their financial advisors before taking any money-related decisions.
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