Moody’s Investor Service, the bond credit rating business of Moody's Corporation, has placed Rural Electric Corporation (REC) and Power Finance Corporation (PFC) in the ‘on review for downgrade’ category, reports Financial Express (FE).

Earlier this month (December 2018), the Cabinet Committee on Economic Affairs (CCEA), 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.

Also Read: Asking PFC To Buy REC Is A Bad Idea; It’s Like Eating Your Investment Seedcorn

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.

“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,” a press release by the government stated.

This cautious stances adopted by Moody’s comes days after another credit rating agency, ICRA, placed the long-term rating of AAA for various debt papers issued by both, REC and PFC, ‘under watch.’ "The ratings for REC drew significant strength from its sovereign ownership, and with the proposed acquisition by PFC - the management control and ownership would be transferred to PFC. Thus, PFC's own credit profile would have a bearing on REC's rating, and the former's own capitalisation profile is likely to be affected after the proposed acquisition,” an ICRA report noted.