The Union Government has rejected the proposal of REC’s takeover by Power Grid Corporation of India Ltd (PGCIL), according to reliable media reports.
The Union power ministry held at meeting on September 26, 2022, to discuss the proposal and arrived at the decision that REC would continue to remain a subsidiary of PFC.
In late June this year, REC had made a proposal to the Union power ministry that the stake by PFC in REC be bought out by a non-banking company. Accordingly, PGCIL’s name came into the picture.
It may be recalled that in March 2019, PFC acquired controlling equity stake in REC as part of a Rs.14,500-crore deal. Earlier, on December 6, 2018, the Cabinet Committee on Economic Affairs (CCEA) gave its in-principal approval for strategic sale in REC along with transfer of management control, to PFC.
The power ministry has also clarified that REC would continue to remain as subsidiary and that there was no decision yet on merging the two entities. The merger of the two companies, it is believed, would reduce the amount of funds available to power sector companies.
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Before the takeover of REC by PFC, the two entities could each borrow up to 20 per cent of a bank’s net worth. Following the takeover, the combined limit has been revised to 25 per cent, by a special stipulation. If the two companies were to merge, the merged entity would be allowed to borrow only up to 20 per cent of a bank’s net worth, which will effectively reduce the funds available to the power sector.
