Power Grid’s market capitalisation had fallen about INR33,000 crore in the last two trading sessions following reports of the proposal. Shares of PGCIL closed at INR201.25, down 0.67 per cent, on the BSE on Monday after hitting 52-week low of INR175.10 intraday.The government has rejectedpowerfinancierREC Ltd‘s proposal of its takeover byPower Grid Corpof India (PGCIL), power and new and renewable energy minister RK Singh told ET on Monday.
Power Grid‘s market capitalisation had fallen about INR33,000 crore in the last two trading sessions following reports of the proposal. Shares of PGCIL closed at INR201.25, down 0.67 per cent, on the BSE on Monday after hitting 52-week low of INR175.10 intraday.
REC‘s stock closed 3.45 per cent down at INR97.90 on BSE on a day the Sensex dropped 1.64 per cent to 57,145.
Power ministryheld a meeting earlier on Monday to discussREC‘s proposal, people aware of the developments said.
ET was the first to report on July 15 that REC has asked the government to consider selling Power Finance Corp’s (PFC) stake in the company to PGCIL.
“REC had come up with a proposal. We discussed the proposal and have decided to reject it,” Singh said. REC, which was accorded the Maharatna status last week, will continue to operate as PFC’s subsidiary and no decision has been taken on its merger with PFC, he said.
In a presentation made to the ministry in the last week of June, REC sought the ministry’s approval to consider asking ‘a non-banking public sector company’ to buyout PFC’s stake in the company.
PFC had acquired REC in March 2019 in a INR14,500 crore deal as part of the government’s consolidation programme. PFC and REC’s merger is stuck on concerns that it may reduce financing in the power sector.
Before the divestment, PFC and REC could each borrow up to 20 per cent of a bank’s net worth. Post divestment, their combined credit exposure limit has been revised to 25 per cent. Once they merge, the combined entity will be able to borrow only up to 20 per cent of net worth from one bank.
The power ministry had opposed the acquisition arguing that the move will hurt the two companies in the otherwise ailing sector and operational and administrative issues might crop up after the deal.
Similar divestment to merge PSUs where synergies existed has been carried through in other sectors as well. ONGC acquired a stake in HPCL in a INR37,000 crore deal while NTPC had spent INR15,000 crore to acquire NEEPCO-THDC.
None of these PSUs have been merged yet.
PFC, and REC, the two power sector finance companies continue to operate as separate entities.
Deloitte, appointed as consultants post acquisition, had suggested merger of the two companies.
Also, the Department of Investment and Public Asset Management had suggested a common chairman for both the companies to facilitate the merger.
