Disinvestments Current Affairs - 2019
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State-owned Power Finance Corporation (PFC) has completed the acquisition of majority stake in REC Ltd by transferring Rs 14,500 crore to the government.
The merger of both the entities is expected to be completed in the next fiscal year in consultation with the government. This acquisition and merger will make PFC second-largest government-owned financial player in the country based on the current market capital after State Bank of India (SBI) and also PFC will be the third-highest profit-making financial player in India.
About the Acquisition
- PFC paid Rs 14,500 crore to the Union government to buy a 52.63% stake in REC.
- This acquisition results in an $80-billion lending giant by assets and potentially helps in faster resolution of stressed assets in India’s power sector.
- The acquisition also helped the union government exceed its disinvestment target of Rs 80,000 crore for the fiscal year 2018-19.
- The consolidation will help in raising funds at competitive costs and lead to convergence of lending policies and rates.
- Further, it will also help in improving asset quality and impress upon state utilities to improve their performance.
PFC taking over REC makes it a dominant player not only in the power sector but also in the entire financial market space. 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.
Since the PFC and REC have a robust presence in the consortium of lenders to power companies, the consolidation will help in the faster resolution of stressed assets.
The proceeds from the disinvestments have exceeded the disinvestment target for the fiscal 2018-19 by Rs 5,000 crore taking the total proceeds to Rs 85,000 crore against the targeted Rs 80000 Cr.
Disinvestment refers to the process of public asset sales by the government of India. Industrial Policy provides that in order to raise resources and encourage wide public participation, a part of the government shareholding in the public sector would be offered to mutual funds, financial institutions, general public and employees.
Disinvestments are undertaken to fulfil the objectives such as modernisation of the public sector through strengthening R & D, initiating diversification/ expansion programmes, retraining and re-employment of employees, funding genuine needs of expansion, widening the capital market basis and mitigating fiscal deficit of the government.
Financial Year: Proceeds from Disinvestment
2014-15: Rs 26,068 crore
2015-16: Rs 23,997 crore
2016-17: Rs 46,247 crore
2017-18: Rs 1,00,056 crore
This is the second highest disinvestment proceeds in a financial year and the government in fiscal 2017-18 had mopped up a little over Rs 1 lakh crore against the target of Rs 72,500 crore. The government has set a target of Rs 90000 crore for fiscal 2019-20.