REC Limited and Power Finance Corporation (PFC) have officially approved their merger scheme on Sunday, June 29, 2026, marking a significant milestone in the consolidation process. According to regulatory filings by both companies, the boards of both state-run entities have now formally approved the scheme of merger under Sections 230 to 232 of the Companies Act, 2013. The merger will result in the combined entity having an aggregate loan book of over ₹11 lakh crore, positioning it as one of India's largest specialised power-sector financing institutions. At the end of the March quarter, the government held a 52.63% stake in REC and 55.99% in PFC, based on shareholding patterns uploaded on the BSE. The merger will create a combined entity that will continue to operate as a government company with the Government retaining majority voting rights and control.
The merger creates significant implications for India's corporate bond market, as PFC and REC together accounted for over half of India's corporate bond market in FY26, with domestic bond borrowings of ₹2.75 trillion and ₹2.77 trillion, respectively. According to Mint, the combined entity's share will reach about 51.1% of the FY26 corporate bond market, with PFC's borrowings equivalent to 25.4% and REC's representing 25.6%. As of March 31, domestic bonds accounted for 56% of PFC's total outstanding borrowing of ₹4.9 trillion, while foreign currency borrowings comprised 20%. The Securities and Exchange Board of India (Sebi) has capped mutual funds' exposure to a single issuer at 10% of a scheme's net assets, whereas the Insurance Regulatory and Development Authority of India (Irdai) has a single exposure limit of 15% on the net controlled funds of an insurance scheme. Market experts warn that the merged entity could face higher borrowing costs in the near term, as investor exposure limits would narrow its bond investor base, with yields potentially hardening slightly until the merged entity diversifies its funding sources.
REC shareholders will receive 88 shares of PFC for every 100 shares they own as on the record date, which is yet to be fixed. As per CNBC TV18, REC had close to 12 lakh small retail shareholders at the end of the March quarter, who will be entitled to this share swap ratio. At the end of March 2026, Mutual Funds held a 9.02% stake in REC, led by Nippon India AMC (1.28%) and ICICI Prudential MF (2.01%), while Life Insurance Corporation of India had a 2.84% stake. Most significantly, as many as 11.68 lakh small retail shareholders, or those with authorized share capital of up to ₹2 lakh, have a 10.21% stake in REC as of March 31, 2026. The share exchange ratio has been determined based on a joint valuation exercise conducted by RBSA Valuation Advisors LLP and Ernst & Young Merchant Banking Services LLP, with SBI Capital Markets and Nuvama Wealth Management providing their respective fairness opinions on the valuation reports. The scheme of merger remains subject to receipt of all requisite approvals and consent required under applicable law, including approvals from respective shareholders and creditors, and other relevant regulatory and government authorities.
REC shares meanwhile rose around 1% to trade at ₹367.95 apiece, reflecting positive market sentiment following the board approval. According to The Economic Times, the merger remains subject to approvals from shareholders, stock exchanges, the Securities and Exchange Board of India (SEBI), the National Company Law Tribunal (NCLT) and other statutory authorities, with the record date for determining eligible shareholders yet to be announced. Power Finance Corp and REC are finalizing a merger plan to help the government maintain its majority stake cost-effectively, with two primary options being considered. The government currently holds a 55.9% stake in PFC and 52.6% in REC, with the remainder owned by public shareholders. Post-merger, the Centre's stake is expected to fall below 51%, necessitating an infusion of about ₹25,000 crore for New Delhi to retain majority control in the combined entity. Several options have been examined, with two emerging as the most cost-effective. One proposal involves the merged entity issuing preference shares to the government at ₹10 apiece, requiring an estimated ₹800 crore outlay if this route is chosen. The alternative involves the government subscribing to non-tradable bonds worth around ₹24,000 crore, which would imply an annual interest cost of around ₹1,400 crore at a coupon rate of 7%.
REC Ltd has approved a proposal to raise up to ₹1.4 lakh crore through the private placement of unsecured or secured non-convertible bonds/debentures, subject to shareholder approval at the company's upcoming Annual General Meeting. According to the company's stock exchange filing, the fundraising will be carried out in one or more tranches over a period of one year from the date shareholders approve the resolution. The issuances will also be subject to approval from the competent authority. The proposed fundraising is aimed at meeting REC's financing requirements and supporting its lending operations. PFC shares declined 1.75% to ₹425.10, while REC edged up 0.08% to ₹364.95 after the boards approved the merger scheme. As reported by Mint, the merger is targeted to be completed by April 1, 2027, subject to approvals from the Department of Investment and Public Asset Management (DIPAM). The implementation roadmap shows the draft merger scheme was to be finalised in June, followed by board and shareholder approvals, with regulatory clearances expected by early 2027. Deloitte Touche Tohmatsu India LLP is acting as the transaction and tax advisor, while Cyril Amarchand Mangaldas has been appointed as the legal advisor for both companies.
