The boards of both the companies have approved the merger of Power Finance Corporation (PFC) and REC. After this decision, the country’s largest power financing company will come into existence, whose total loan book will be more than Rs 11 lakh crore. The most important decision in this mega merger has been the share swap ratio, under which for every 100 shares of REC, investors will get 88 shares of PFC. Now the biggest question in the minds of investors in the stock market is that amidst this big change, which stock to bet on, PFC or REC, to earn profits.
Rise of giant company in power sector
On Sunday, the board members of PFC and REC have approved the much-awaited merger plan. This is not a normal merger, but it will give birth to a big institution that provides loans to India’s energy sector. The balance sheet of the new company formed after the merger will be at par with the country’s largest non-banking financial institutions (NBFCs). Market experts believe that this step will eliminate duplication in the work of both the companies. The problem of both companies giving separate loans in the same project will end, which will make the balance sheet more effective.
Complete mathematics of share swap for investors
According to the official information given to the exchange, the share exchange ratio for this merger has been fixed at 88:100. This simply means that if you currently hold 100 equity shares of REC with a face value of Rs 10, then in return you will be given 88 fully paid-up equity shares of PFC with a face value of Rs 10. However, the record date has not been announced yet to determine the eligibility of shareholders for the merger plan. Before finalizing this entire process, approval will have to be taken from shareholders, stock exchanges, market regulator SEBI and other statutory authorities including National Company Law Tribunal (NCLT).
Where will you get more profits?
Harshal Dasani, Business Head of INVasset PMS, has clarified the situation regarding which shares should be included in the portfolio. According to him, this merger is very strong from strategic point of view. The new company will benefit greatly from the current capex (capital expenditure) cycle of the power sector. This includes reforms related to renewable energy financing, expansion of transmission network and distribution. Dasani believes that investors who are already holding shares of these companies should understand the difference (arbitrage) between the current market price and the share swap ratio. It would be a wise move to hold the stock which appears to be more valuable mathematically.
PFC is considered better
The expert has a clear view for people planning fresh investments. Dasani says that between PFC and REC, PFC seems to be a cleaner option for investment. The biggest reason for this is that PFC is the parent company in this merger and is playing the role of an anchor in the entire process of consolidation. He says the market has already largely factored in power capex, transmission and improving health of state power companies in the current share price, yet PFC’s strong business model makes it a safe bet for the future.
Disclaimer: This article is for information only and should not be considered as investment advice in any way. TV9 Bharatvarsha advises its readers and viewers to consult their financial advisors before taking any money-related decisions.
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