Fused entity to have enough cash to loan private players: PFC on REC merger

PFC and REC can separately lend up to 25 per cent of their net worth to a single borrower/ project, and lending to a group borrower could be 40 per cent, PFC informed the BSE

Power Finance Corporation (PFC) on Friday said the combined entity after merger with REC will have "enough cushion" to provide loans to private sector players.

Amid reports that the merger could impact the combined entity's lending capacity, PFC also said it did not expect compliance issues with respect to borrowing.

In March 2019, PFC completed acquisition of 52.63 per cent stake of the government in REC along with the management control at a cash purchase consideration of Rs 14,500 crore.

PFC and REC can separately lend up to 25 per cent of their net worth to a single borrower/ project, and lending to a group borrower could be 40 per cent, PFC informed the BSE.

"Considering PFC's present net worth, there is enough cushion to lend to private sector. Even in case of merger, considering the consolidated net worth of the merged entity, there is enough cushion to lend to private sector and hence the case of reduction for exposure does not arise," the company said in a clarification to the stock exchange on reports about the merger of the two entities.

It further said in case of lending to government borrowers the two entities presently have a relaxation from the RBI on credit concentration norm.

In view of the above it did not expect compliance issues with respect to borrowing as well as in the case of merger adding that borrowing costs for PFC for acquisition purposes is not at 7.25 per cent.

But it did not specify as to at what cost it borrowed for paying the government for acquisition of government stake in REC last year.