PFC-REC merger moves closer as Centre weighs preference shares to retain 51% stake

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PFC-REC merger moves closer as Centre weighs preference shares to retain 51% stake
- Published OnOct 26, 2026 | 17:29 IST
- Last Updated OnOct 26, 2026 | 17:29 IST
The government is weighing preference shares to protect its majority stake while advancing the mega state-backed lender consolidation toward a spring target. With regulatory clearances already secured, the proposal awaits final ministerial sign-off before reaching the cabinet. Discover how the share-swap ratio impacts existing minority shareholders.
The proposed merger of Power Finance Corporation (PFC) and REC Ltd is moving closer to the Union Cabinet, with the Finance Ministry reviewing the plan before it is submitted for approval, Power Secretary Pankaj Agarwal told Moneycontrol.
The government is considering issuing preference shares to maintain its minimum 51% stake in the merged company, according to the report. This would replace alternatives discussed earlier, including recapitalisation bonds and a fresh equity infusion.
“One round of inter-ministerial consultation has been done. The comments have been incorporated. We have sent the proposal to the finance ministry. Once we have the approval of the finance minister, it would put up before the cabinet soon,” Agarwal told Moneycontrol.
The proposed merger is targeted to take effect from April 1, 2027. Agarwal did not disclose the amount of preference capital being considered, although previous reports have put the potential outlay at around ₹800 crore.
The development follows the Reserve Bank of India's no-objection certificate for the merger on October 15 and observation letters issued by the National Stock Exchange and BSE on October 19.
The transaction remains subject to the necessary statutory and regulatory approvals, as well as shareholder and creditor consents.
REC to merge into PFC
The boards of both state-owned lenders approved the merger scheme in June. Under the proposal, REC will be absorbed into PFC.
Eligible REC shareholders will receive 88 PFC equity shares for every 100 REC shares they hold, subject to the terms of the scheme.
The proposed preference shares would help the government retain its minimum 51% ownership in the merged company, preserving its status as a government company.
Preference shares could reduce the need for a large upfront cash infusion compared with issuing fresh equity. Recapitalisation bonds, meanwhile, carry interest costs. The final financial implications will depend on the structure of the proposed preference capital.
Also Read: REC gets RBI nod for proposed merger with Power Finance Corporation

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