New Delhi: In one of the biggest fund mobilisation exercise of its kind, the State Bank of India (SBI) has decided to raise around $2 billion overseas to help power sector financier Power Finance Corporation (PFC) acquire government’s entire 52.63 per cent stake in state-owned infrastructure finance company REC (erstwhile Rural Electrification Corporation).
Top sources in the banking sector said the government has favoured SBI to mobilise external commercial financing for PFC due to its size and experience and ability to raise large amount funds overseas at most competitive rates.
The finance ministry has been sounded that the bank may get mandate to do Rs 12,000 crore fund hunting for PFC after the plan also got the power ministry’s nod.
Subject to Reserve Bank of India (RBI) approval, SBI may either tap SBI London or New York for funds. If this is not available then the bank will seek mandate to raise funds from overseas. In this case, SBI will underwrite the debt backed by government guarantee.
At Friday’s closing on the Bombay Stock Exchange (BSE) at Rs 109.35 a price, the government share in REC is valued at Rs 12,000 crore. The amount will be higher if PFC gives a premium over the prevailing price.
“Soon SBI will be given the mandate for this fund raising exercise as the government wants to complete the deal between two power sector financiers over the next couple of months. This is also essential to help the Centre mobilise targeted Rs 80,000 as disinvestment proceeds for FY19 as it has only reached about Rs 34,000 crore,” said a banking source privy to the development.
RBI and PFC officials did not respond to FC’s mobile phone messages, while senior REC officials could not reached. But a top official in SBI confirmed the development asking not to go on record as formal nod was yet to come from RBI.
“It is good development that would help PFC reduce its cost of acquiring government shares. Overseas funds would be 400-500 bps lower than those available in the domestic market. It will also help PFC overcome the shortcomings in domestic debt market that has crumbled in absence of credible demand,” said a market analyst not willing to be named.
While SBI would help PFC with funds needed for the acquisition, sources said the power sector entity may itself look at viability of own overseas bond issue, including raising overseas rupee-denominated bond or masala bonds. But with less time on hand, SBI could a better bet.
The overseas fund-raising exercise for PFC would also depend on ECB balance available for FY19. RBI has fixed a cap on the outstanding stock of ECB at 6.5 per cent of the GDP at current market prices. Based on the gross domestic product (GDP) figures at 2018 March-end, the soft limit works out to $160 billion for FY19. But the outstanding stock of ECB as on September 30 stood at $ 126.29 billion.
Last week, the PFC board has granted in-principle approval to the deal pursuant to the decision of the cabinet committee on economic affairs (CCEA) regarding purchase of the government shareholding in REC along with transfer of management control. CCEA earlier on December 6 had approved the sale of government's 52.63 per cent stake in REC to PFC.
The government held 57.99 per cent stake in REC, and 65.64 per cent in PFC at September-end. It’s holding in REC has come down to 52.63 per cent following stake sale through exchange traded funds.
