PFC-REC Merger: The proposed merger of REC Limited into Power Finance Corporation Limited (PFC) has crossed three important regulatory milestones, with the Reserve Bank of India, National Stock Exchange and BSE issuing no-objection clearances for the transaction. However, the proposed share exchange ratio indicates a 3.26 per cent discount for REC shareholders based on the reference market prices, bringing the valuation implications of the merger into focus.
Both PFC and REC are Maharatna public sector enterprises operating under the administrative control of the Ministry of Power. However, their ownership structures differ.
In PFC, Government of India holds a 55.99 per cent stake. REC, a subsidiary of PFC, which holds a 52.63 per cent stake in REC. The remaining 47.37 per cent is held by public shareholders. PFC acquired the controlling stake from the Government of India in March 2019.
PFC-REC Merger Ratio
The merger, which would create a power-sector financing giant with a combined loan book exceeding Rs 11 lakh crore, received the RBI’s No-Objection Certificate on October 15, 2026. Subsequently, PFC disclosed on October 19 that it had received No-Objection Letters from both NSE and BSE for the proposed scheme of amalgamation.
PFC REC merger impact on share price
Under the proposed share swap arrangement, REC shareholders will receive 88 equity shares of PFC for every 100 shares of REC held. At the reference market prices of Rs 302 for REC and Rs 332 for PFC, the PFC shares to be issued are worth approximately Rs 984 less for every 100 REC shares held.
PFC-REC merger: What has changed after RBI, NSE and BSE clearances?
The latest developments mark progress in the regulatory approval process for the proposed merger.
The RBI issued its NOC on October 15, followed by no-objection letters from the two stock exchanges on October 19. These clearances come after the boards of PFC and REC approved the merger scheme in June 2026, subject to the necessary approvals.
The transaction involves the merger of REC with and into PFC under Sections 230–232 of the Companies Act, 2013.
Once implemented, REC would be absorbed into PFC under the approved scheme, with REC shareholders receiving PFC shares according to the prescribed exchange ratio.
However, the regulatory clearances received so far do not constitute final approval for completion of the merger. The scheme remains subject to other applicable regulatory approvals and the necessary consent of shareholders and creditors.
PFC-REC merger swap ratio: What will REC shareholders receive?
The proposed exchange ratio is 88:100, meaning an investor holding 100 shares of REC would receive 88 shares of PFC upon implementation of the scheme.
Based on the reference market prices provided, the valuation comparison is as follows:
| Particulars | REC | PFC |
| Reference share price | Rs 302 | Rs 332 |
| Shares considered | 100 | 88 |
| Market value | Rs 30,200 | Rs 29,216 |
| Difference | – | Rs 984 |
| Implied discount | – | 3.26% |
At these prices, an REC shareholder holding 100 shares, valued at Rs 30,200, would receive 88 PFC shares worth Rs 29,216.
This translates into an implied discount of approximately 3.26 per cent, calculated against the market value of the REC shares.
The difference reflects the relationship between the proposed exchange ratio and the reference market prices. It does not represent a fixed loss for shareholders, as the market prices of both companies may change before the merger becomes effective.
Why does the merger ratio matter for REC investors?
The exchange ratio determines how many shares of the merged entity REC shareholders will receive in return for their existing holdings.
Although PFC’s reference share price of Rs 332 is higher than REC’s Rs 302, the proposed ratio provides fewer PFC shares than the number of REC shares surrendered.
Consequently, the aggregate market value of the shares received is lower at the specified reference prices.
For investors, the eventual economic value will depend on the share prices prevailing when the transaction is implemented, as well as the final terms and completion of the merger.
Rs 11 lakh crore loan book: What will the combined PFC-REC entity look like?
According to the Ministry of Power’s June 30 announcement, the merger will create a financing institution with an aggregate loan book exceeding Rs 11 lakh crore.
The government also specified that the merged company must continue to qualify as a government company under the Companies Act, 2013, with the Centre retaining majority voting rights and control, directly or indirectly.
The transaction will combine two major public-sector lenders that finance power generation, transmission, distribution and related infrastructure.
What happens to existing REC shares after the merger?
Under the proposed arrangement, REC shareholders identified on the record date will receive fully paid-up PFC equity shares with a face value of Rs 10 each, in the approved 88:100 ratio.
REC’s existing equity shares will be cancelled once the scheme becomes effective. The record date will be determined by the boards at a later stage.
PFC-REC merger: What approvals are still pending?
According to REC’s October 19 exchange disclosure, the scheme remains conditional on obtaining other statutory and regulatory approvals and fulfilling the requirements for implementation, including approvals from the respective shareholders and creditors.
The government’s original announcement also specifies that the merger must comply with all applicable legal requirements before becoming effective.
The latest exchange clearances therefore advance the proposed transaction, but do not mean that the merger has been completed.
Who are the advisers for the PFC-REC merger?
According to the Ministry of Power, Deloitte Touche Tohmatsu India LLP is acting as the transaction and tax adviser, while Cyril Amarchand Mangaldas is serving as legal adviser to both companies.
The focus now shifts to the remaining approvals, the announcement of the record date and the eventual implementation of the share exchange.
For REC shareholders, the 88:100 swap ratio remains a key consideration, particularly as the illustrative market-price comparison indicates a 3.26 per cent discount.