Moody’s confirms ratings of PFC, REC; retains stable outlook


MUMBAI, Mar 27: Global rating agency Moody’s
Wednesday confirmed Baa3 ratings and retained stable outlook
of Power Finance Corporation (PFC) and REC Ltd on expectation
the deal between the two companies will conclude soon.

Last week, state-owned PFC had said it will acquire

the entire 52.63 percent shares of the government in REC for

Rs 14,500 crore by the month-end.

The rating agency has confirmed the Baa3 issuer

ratings of PFC and REC.

“With all necessary approvals in place, we expect this

transaction to conclude in the near term, possibly before the

end of March 2019,” Moody’s said in a note.

The ratings of the two companies were put under review

on December 13, 2018, following the announcement that PFC will

acquire the government’s stake in REC.

The acquisition will weaken PFC’s capital levels as it

is buying the government’s stake in REC without raising any


It, however, said the internal capital generation

during the next two years will help to partially rebuild the

company’s capital.

The expectation of sufficient profitability to allow

for some rebuilding of capital is based on assumption that PFC

and REC have now classified the bulk of their stressed loans

as stage 3 loans.

While some increase in coverage levels may be

required, profitability will remain a key credit strength for

the two companies, it said.

“As the resolutions of some of the stressed loans come

through, it will boost profitability as the proportion of

interest-earning assets will increase,” it said.

The report said PFC’s strategic importance to the

government will further increase upon completion of the

acquisition, as the combined entity will become the biggest

non-bank finance entity in which the government holds a

controlling stake.

The rating agency said it continues to build in a high

level of extraordinary support from the government, leading to

the confirmation of the PFC’s final rating at Baa3 by

incorporating a three notch uplift to its Baseline Credit

Assessment (BCA).

While REC will no longer be directly owned by the

government, the government will continue to exercise

control over it through PFC, it said.

“It remains strategically important to the power

sector and its role in implementing key central government

policy initiatives in the power sector will remain unchanged.

“We expect REC will continue to receive extraordinary

government support when needed, although such support will

flow through its parent PFC,” the report said. (PTI)