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PFC-REC merger – focus on scaling power financing

ICICIdirect Research 13 Feb 2026 DISCLAIMER

Pursuant to the Union Budget February 2026 announcement to restructure public sector NBFCs, the boards of Power Finance Corporation Ltd. (PFC) and REC Ltd. accorded in-principle approval for restructuring in the form of a merger of PFC and REC.
REC became a subsidiary of PFC after PFC acquired a 52.63% equity stake from the Government of India in 2019. The merged entity will continue to remain a government company under the Companies Act, 2013 and other applicable laws.
The Centre may need to infuse additional equity worth ₹16000-17000 crore to ensure its stake remains above the 51% threshold, as merger at current valuations could potentially dilute government ownership below the required level.  Amendment of the Companies Act to redefine a "government company" for listed entities by lowering threshold from current 51% remains an option. 
The consolidation is aimed at creating a single, focused institution with improved scale and efficiency to address evolving financing needs of the power sector including new and emerging technologies such as Green Hydrogen, CCUS, small modular nuclear reactors and energy storage solutions. As a combined entity, it is expected to have stronger technical capabilities, deeper sector expertise, which would be able to attract foreign partnership.
While timelines and details of the merger are awaited, holding company discount is expected to decline gradually as the process progresses.

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