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Bond Market News
PFC Acquires Indian Government Stake in REC; Sets Stage for Mega-Merger
February 10, 2026
Power Finance Corporation (PFC) has acquired 52.63% of the Indian government’s stake in REC Ltd. as part of a restructuring that will lead to a merger of the two state-owned power sector financiers.The initiative was announced in India’s Union Budget 2026 and granted in-principle approval. The merged entity will continue to qualify as a government company. Analysts say the deal is largely a structural consolidation rather than a transformational change. Both lenders will remain heavily exposed to India’s power sector and efficiency gains are expected to be minimal given already low operating costs. Analysts highlighted that maintaining majority government ownership will be a key challenge. Based on current market prices, a share-swap merger would leave the government with roughly a 42% stake, below the 51% threshold required under the Companies Act. Analysts outline three possible solutions:
- Large share buybacks by PFC and REC with the government abstaining, or
- A government capital infusion of roughly INR 350bn (~$3.9bn), or
- A legislative change reducing the definition of a government company to 26% ownership
Regulatory relief may also be needed for banks whose exposure to the combined entity could breach single-borrower limits.
Dollar bonds of REC and PFC traded stable. For instance PFC’s 3.35% 2031s were at 94.2, yielding 4.39% and REC’s 4.75% 2029s were at 101.3, yielding 4.37%.
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