Insta
Not The Brightest Bulb On The Porch: Acquisition Of REC Could Stretch PFC’s Balance Sheet, Says Report
Representative image. (Mahendra Parikh/Hindustan Times via Getty Images)
According to a report released by India Ratings, a credit rating firm, the acquisition of REC (Rural Electrification Corporation) by PFC (Power Finance Corporation), could increase the leverage of PFC and have an adverse impact on PFC’s return on assets and return on equity.
The Cabinet Committee on Economic Affairs, headed by PM Modi, gave its in-principle approval for the sale of government’s existing 52.63 per cent stake in REC to PFC. Both the entities are state-run PSUs (Public Sector Units) operating under the Union Ministry of Power. While PFC is the financial backbone of India’s power sector, REC is a significant player in the rural electrification space.
Private sector lending accounted for 13 per cent, and 18 per cent of the loan books of REC and PFC respectively and the combined entity will have a higher exposure to the private sector. This might lead to a fall in its asset quality and affect the credit rating of the expanded PFC portfolio.
However, the government release on the merger noted, “the acquisition intends to achieve integration across the Power Chain, obtain better synergies, create economies of scale and have enhanced capability to support energy access and energy efficiency by improved capability to finance power sector.”
Support Swarajya's 50 Ground Reports Project & Sponsor A Story
Every general election Swarajya does a 50 ground reports project.
Aimed only at serious readers and those who appreciate the nuances of political undercurrents, the project provides a sense of India's electoral landscape. As you know, these reports are produced after considerable investment of travel, time and effort on the ground.
This time too we've kicked off the project in style and have covered over 30 constituencies already. If you're someone who appreciates such work and have enjoyed our coverage please consider sponsoring a ground report for just Rs 2999 to Rs 19,999 - it goes a long way in helping us produce more quality reportage.
You can also back this project by becoming a subscriber for as little as Rs 999 - so do click on this links and choose a plan that suits you and back us.
Click below to contribute.
Latest
