We're considering ArcelorMittal's Rs 4,800 cr offer for Essar Mahan, says PFC chief Rajeev Sharma

Power Finance Corporation (PFC) hopes to start a new inning in the power sector after the acquisition of Rural Electrification Corporation. In an interview with DNA Money, PFC CMD Rajeev Sharma says PFC-REC deal will create a fair amount of synergy and a common platform for power sector financing

What is the present status of the acquisition of REC by PFC?

PFC has received all regulatory approvals from Sebi, Competition Commission of India and RBI. The Department of Investment and Public Asset Management (DIPAM) has appointed a valuer for the valuation of REC. Besides, PFC is independently doing REC's valuation. The acquisition is viewed as an inorganic growth opportunity which will provide a competitive edge to PFC in the future. PFC envisages closing the deal by March 31 this year.

Media reports say that the transaction price has been fixed. Can you please confirm?

Let me clarify, there are a lot of speculative numbers floating in the market but the transaction price has not been yet finalised and price determination is underway. The pricing will be mutually fixed by the government and PFC and it will be as per the Sebi guidelines. I want to further inform you that PFC is not considering extending an open offer to the minority stakeholders.

What is the progress on the Essar Mahan power project?

We had earlier received a resolution offer of Rs 3,500 crore from the developer (Essar Group) himself for Essar Mahan under a one-time settlement scheme. But, now we have received an offer from ArcelorMittal for about Rs 4,800 crore. The offer made by ArcelorMittal is at Rs 4 crore per mw and the prevailing rate for setting up a new power plant is Rs 6 crore per mw. We are considering the ArcelorMittal proposal because there is a difference of almost Rs 1,300 crore. It is a good offer at Rs 4 crore per mw.

How PFC proposes to fund the acquisition?

PFC proposes to fund it through multiple instruments, including debt from the market or payments received on loan assets from borrowers including interest. PFC is already in discussion with the lenders and sees no issues whatsoever on this front. PFC is in the process of tying up subordinate debt for enhancing tier II capital and is confident that it will not only meet the 15% minimum capital adequacy required by RBI but also has sufficient capital to sustain its future growth.

Post REC's acquisition, what will be the roadmap for PFC?

PFC-REC will create a common platform for power sector financing. The loan book of PFC-REC combine will be Rs 6 lakh crore. We will be a dominant player in the power sector. PFC will explore new areas of business like smart grid, smart meters, waste to energy plants, refinancing of renewable energy projects, financing of greenfield renewable projects, increase share in transmission and distribution, coal mine development, electric vehicles and charging stations for electric vehicles, electric buses and irrigation. PFC share will be quite substantial in these areas.

Stressed assets are a cause of concern for PFC and other lenders. What is the progress made so far?

PFC has made sufficient provisioning of 52% against the stressed assets which is adequate to protect its future profits. PFC is close to achieving resolution for GVK Ratle project of Rs 811 crore. The borrower has been servicing regularly for the past 11 months. This loan asset is expected to be upgraded to a standard asset from the non-performing category in the coming quarter along with provision reversal of Rs 600 crore.

Further, 100% principal recovery (around Rs 1,400 crore) has been offered by three borrowers Dans Energy, Shigan Energy and Essar Transmission. PFC is negotiating a better deal with them. Currently, 16% provisioning is available for these project and, if settled, it will lead to a reversal of this provision too.