Power Finance Corporation and REC Ltd moved a long-flagged merger onto the next legal rung on Sunday, June 28, 2026, when their boards cleared the Scheme of Merger in late-night exchange filings under Sections 230 to 232 of the Companies Act, 2013, with REC set to merge into PFC. The agreed swap hands REC shareholders 88 equity shares of PFC for every 100 shares of REC, and the filing frames the combined entity as a power-sector financing institution with an aggregate loan book exceeding Rs 11 lakh crore.
The market’s first verdict on Monday was muted. PFC shares were down 1.83% at Rs 424.75 in early deals, while REC declined 0.32% to Rs 363.50, leaving both stocks below where they closed last Thursday.
The Boards Said Yes
PFC and REC said in their separate filings that both boards approved the Scheme of Merger at meetings that ended late on Sunday. Under the scheme, REC will merge into PFC by absorption, with the swap ratio fixed at 88 PFC shares for every 100 REC shares. A record date for the share exchange will be announced later.
The merger remains subject to multiple statutory and regulatory approvals, including approvals from shareholders, creditors and the relevant government authorities. The boards also flagged that the scheme is conditional on the merged entity continuing to qualify as a government company under the Companies Act, with the Government of India retaining majority voting rights and control.
Both companies framed the combined loan book of over Rs 11 lakh crore as the principal prize, and described the merged entity as the lead institution for implementing power-sector reforms and flagship programs. The next filing milestones, from a draft scheme expected to be finalised through 2026 into record-date declaration early next year, sit inside that approvals list.
| Headline figure | What the filing says |
|---|---|
| Swap ratio | 88 PFC shares per 100 REC shares, face value Rs 10 each |
| Combined loan book | Exceeding Rs 11 lakh crore |
| PFC share price (June 29 early deals) | Rs 424.75, down 1.83% |
| REC share price (June 29 early deals) | Rs 363.50, down 0.32% |
What the 88:100 Swap Means in Plain Math
The ratio translates a 100-share REC lot into 88 PFC shares, with both stocks carrying a face value of Rs 10. For REC shareholders, the arithmetic rests on the relative valuation reports from RBSA Valuation Advisors LLP and Ernst & Young Merchant Banking Services LLP, which together fed the fairness opinions given by SBI Capital Markets to PFC and Nuvama Wealth Management to REC.
Beyond the share count, the swap leaves the relative ownership of the merged entity tied to REC’s current free float, since the Centre does not directly hold REC shares even though it owns 55.99% of PFC. That ownership math is what makes the next round, shareholder and creditor votes against an appointed base, the real valuation event.
Who Actually Holds the Bag
The boards’ nod lands on a shareholder register loaded with public money. According to the March-quarter BSE shareholding pattern cited in exchange filings, the Government of India held 55.99% of PFC and 52.63% of REC at the end of the March quarter. The Centre’s control of REC runs through PFC, which owns 52.6% of REC, which the merger will absorb.
Mutual funds held 9.02% of REC at the end of the March quarter, with ICICI Prudential MF at 2.01% and Nippon India AMC at 1.28% among the named holders. Life Insurance Corporation of India held 2.84%. The retail tail is unusually heavy: filings disclose 11.68 lakh small shareholders, those with up to Rs 2 lakh in authorised share capital, holding a combined 10.21% of REC as of March 31 this year.
The practical effect of the swap is that these dispersed holders, rather than the government or the institutional anchors, are the ones who will vote on the scheme. Their majority of the non-promoter equity decides whether the 88:100 ratio stands as filed or is renegotiated in the NCLT process.
| Shareholder (March quarter) | Stake in PFC | Stake in REC |
|---|---|---|
| Government of India | 55.99% | 52.63% |
| PFC (parent) | n/a | 52.60% |
| Mutual funds | n/a | 9.02% |
| LIC | n/a | 2.84% |
| Small retail (11.68 lakh holders) | n/a | 10.21% |
The Five Regulatory Hurdles Still on the Table
The scheme’s path from Sunday’s board approval to a court-sanctioned effective date runs through a checklist the filings themselves spell out. First comes shareholder and creditor consent at companies’ meetings, a vote that tests the 88:100 ratio against the dispersion in the table above.
Second, in-parallel stock-exchange clearance from BSE and NSE, the SEBI formula that pre-empts any open offer or revised pricing under the Takeover Regulations, and a reference to the National Company Law Tribunal under Section 230 of the Companies Act. Third sits government-side sign-off, including approval from the Department of Investment and Public Asset Management, which Moneycontrol has reported is the next gating authority.
Fourth is the structural consent: the scheme is conditional on the merged entity continuing to qualify as a government company. That preserves the Centre’s majority voting rights and control, and is the explicit hold that keeps any future privatisation debate off the table. Fifth is the merger itself becoming effective from April 1, 2027, the indicative date the filings point to as the appointed day.
None of these steps require new legislation. Each can stretch the calendar by a quarter, and the filings give the next data point only as the draft scheme goes through exchange review and into the formal shareholder process.
The Banker Room Behind the Scheme
The filings name six firms that have signed the deal mechanics. Each sits on a separate rail, and the roles do not overlap. Deloitte Touche Tohmatsu India LLP is the transaction and tax advisor for both companies, and Cyril Amarchand Mangaldas is the legal advisor for both. The valuation work splits two ways: joint valuation reports were prepared by RBSA Valuation Advisors LLP and Ernst & Young Merchant Banking Services LLP.
The fairness opinions, the document boards rely on when approving a swap, were issued by SBI Capital Markets for PFC and Nuvama Wealth Management for REC.
For a Rs 11 lakh crore book merger run under the government’s public-sector NBFC restructuring brief, the line-up is unusually broad. It is also what gives the boards the formal defence they need when shareholders challenge the ratio inside the NCLT process: the swap was tested by two independent valuers and judged fair by two merchant bankers.
- Deloitte Touche Tohmatsu India LLP: transaction and tax advisor
- Cyril Amarchand Mangaldas: legal advisor
- RBSA Valuation Advisors LLP: joint valuer
- Ernst & Young Merchant Banking Services LLP: joint valuer
- SBI Capital Markets: fairness opinion for PFC
- Nuvama Wealth Management: fairness opinion for REC
The Timeline Built Around Budget Day
The merger started as a budget signal. Finance Minister Nirmala Sitharaman used the Union Budget 2026 to announce plans to restructure the two state-owned power financiers and improve their operational efficiency, naming PFC and REC as the first steps in scaling up public-sector NBFCs.
The boards of PFC and REC then granted in-principle approval for the merger in February 2026, and the process stepped up a gear in June when the President’s approval for the amalgamation cleared one of the upstream statutory blocks. SBI Capital Markets had already been appointed as merchant banker and RBSA Valuation Advisors as the independent valuer for fixing the share exchange ratio.
The board approval on June 28, 2026 slots between that presidential sign-off and the next calendar horizon, with the scheme now moving to NCLT, SEBI and DIPAM review through 2026 ahead of an effective date of April 1, 2027.
- Union Budget 2026: Sitharaman announces PFC and REC restructuring
- February 2026: Boards grant in-principle merger approval
- June 10, 2026: Presidential approval for amalgamation
- June 28, 2026: Boards approve Scheme of Merger with 88:100 swap
- April 1, 2027: Indicative effective date for the merger
The Market’s Quiet Verdict
The first trading session after the swap was announced did little to settle nerves. PFC opened lower and stayed lower, ending early deals down 1.83% at Rs 424.75. REC, which has been flat year to date, dipped 0.32% to Rs 363.50, leaving the broader story for holders unchanged.
Context matters here. Last Thursday, before the filings had landed in the public domain, REC had ended little changed at Rs 364.4 and PFC had closed 0.8% lower at Rs 433.4. The Monday reaction is therefore the market digesting the swap, not repricing it, and the gap between the Rs 424.75 print and Rs 433.4 keeps that distinction visible.
For a deal whose rationale is operational, the early read suggests shareholders are waiting for the next data point before deciding whether the 88:100 swap, the larger loan book and the slower calendar add up to a vote worth their holding.
Frequently Asked Questions
What is the share swap ratio in the PFC-REC merger?
REC shareholders will receive 88 equity shares of PFC for every 100 equity shares of REC held on a record date that the boards will announce later. Both companies’ shares carry a face value of Rs 10.
What will be the size of the merged entity?
The filings describe the merged entity as having an aggregate loan book exceeding Rs 11 lakh crore, and as the principal institution for implementing power-sector reforms and flagship programs.
Which approvals does the merger still require?
Shareholder and creditor consent under Section 230 of the Companies Act, stock-exchange and SEBI clearance, a reference to the National Company Law Tribunal, and sign-off from the Department of Investment and Public Asset Management.
When is the merger expected to take effect?
The filings point to April 1, 2027 as the indicative effective date, subject to all regulatory and government approvals landing on schedule.
Will the merged entity stay under government control?
Yes. The scheme is conditional on the combined entity continuing to qualify as a government company, with the Government of India retaining majority voting rights and control.
