RBSA Advisors valuation advisor for govt's stake sale in rural power firm

Illustration: Binay Sinha
The central government has appointed RBSA Advisors as the valuation advisor for disinvestment of its stake in REC Limited (REC) to Power Finance Corporation Limited (PFC).

The Cabinet Committee on Economic Affairs had given 'in principle' approval for the strategic sale of the Government of India's existing 52.63 per cent of the total paid up equity shareholding in REC to PFC, along with the transfer of management control. Upon completion of the transaction, REC will become a subsidiary of PFC. 

The transaction could create operational synergies, as both PFC and REC operate in the same business segment.

The Centre's stake in PFC is valued at nearly Rs 16,000 crore, while its 58.3 per cent stake in REC is valued at Rs 12,000 crore. The government is looking to get a premium on the deal.

So far in the current financial year, the government has raised over Rs 32,000 crore from CPSE disinvestment. The Budget target has been set at Rs 80,000 crore for the current financial year. The above transaction would help the government raise close to $2 billion.

PFC is buying 52.6 per cent and not 58.3 per cent because that remainder constitutes REC's weightage in two of the government's exchange-traded funds, the Bharat 22 ETF and CPSE ETF. 

PFC is the power sector's leading financier, which is currently battling an NPA (non-performing asset) threat from close to 14,000 Mw worth of power assets. REC, on the other hand, has been at the helm of the government's key energy access projects -- the most recent being the ambitious SAUBHAGYA project for 100 per cent household electrification. 

PFC had total assets of Rs 2.86 trillion and REC had total assets of Rs 2.46 trillion as on March 2017. Over FY14-FY18, the loan books of PFC and REC expanded at a compound annual growth rate of 10.22 per cent and 12.66 per cent to Rs 2.79 trillion and Rs 2.39 trillion, respectively. 

PFC may not be required to make an open offer to minority shareholders of REC after buying out the government's 52.63 per cent stake in the company as it is a related party transaction, said RBSA. REC will continue to be a separately listed company. 

In January 2018, ONGC bought the government's entire 51.11 per cent stake in oil refiner HPCL for Rs 36,915 crore. ONGC was exempted from making an open offer to minority shareholders of HPCL. 

At the end of 2017-18, the total resources of REC stood at over Rs 2.46 trillion, of which reserves were Rs 33,515.59 crore. The net worth of the company was Rs 35,490 crore and 'cash and bank balance' was Rs 1,773 crore at the end of March 2018.

RBSA Advisors is a leading global independent valuation, investment banking, restructuring and advisory firm.  

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