In Short : The government is evaluating options to retain at least a 51% stake in Power Finance Corporation after its proposed merger with REC. Measures under consideration include issuing preference shares or fresh equity to the Centre. The move aims to keep the merged entity classified as a government company while strengthening financing capacity for large infrastructure and power sector projects.
In Detail : The government is exploring multiple options to retain a minimum 51% stake in Power Finance Corporation following its proposed merger with REC. Maintaining majority ownership is seen as essential to preserve the merged entity’s status as a government company and ensure strategic control over one of the country’s largest power sector financiers. ([ETEnergyworld.com][1])
Officials indicated that one of the key options under consideration is issuance of preference shares to the government. This mechanism would allow the Centre to increase its capital holding without significantly diluting existing shareholders, helping maintain majority ownership after the merger is completed. ([ETEnergyworld.com][1])
Another option being discussed involves issuing fresh equity directly to the government. This would raise the Centre’s stake in the merged entity and ensure that government ownership remains above the threshold required to classify the company as state-owned under the Companies Act. ([The Economic Times][2])
Currently, the government holds about 55.99% stake in Power Finance Corporation and around 52.63% in REC. After the merger, the Centre’s shareholding could decline due to share swaps and restructuring, prompting discussions on mechanisms to retain majority control. ([ETBFSI.com][3])
Maintaining a stake above 51% is important because the Companies Act defines a government company as one in which at least 51% of paid-up capital is held by the Centre or state governments. Retaining this status ensures continued policy alignment and strategic oversight in financing power and infrastructure projects. ([ETEnergyworld.com][1])
The proposed merger of PFC and REC is aimed at creating a larger government-owned non-banking financial company with enhanced lending capacity. A combined entity would be able to finance large-scale power, transmission, and renewable energy projects more efficiently. ([ETBFSI.com][3])
The merger is also expected to improve risk absorption capacity and diversify lending portfolios across sectors such as renewable energy, distribution, and infrastructure. This would strengthen the ability of the combined entity to support India’s expanding energy and infrastructure requirements. ([ETBFSI.com][3])
Market participants view the merger as a structural consolidation designed to create scale and improve operational efficiency. A larger balance sheet would allow the merged company to compete more effectively with other financial institutions and support long-term project financing. ([The Economic Times][2])
Discussions are ongoing regarding the final structure, and the government is expected to choose an option that balances ownership control with shareholder interests. The decision will play a key role in shaping the governance and capital structure of the merged power financing entity.
