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Business – Open offer wall for Bharti-MTN

MUMBAI/NEW DELHI: Within days of market regulator Sebi changing rules related to depositary receipts that some think could put a spanner in the
proposed Bharti Airtel-MTN deal, top officials from the South African government met a number of top officials from two regulatory bodies in Mumbai. Trying to untangle the troublesome knots which are forcing the two parties to extend the deadline for the deal, the South African delegation met senior officials of banking regulator Reserve Bank of India (RBI) and market regulator Securities and Exchange Board of India (Sebi) on Thursday.

The deal is facing fresh stumbling block due to Sebi’s new guidelines on compulsory open offer even in the case of American Depository Receipts (ADRs) and Global Depository Receipts GDRs, which an acquirer company has to give to minority shareholders in case it buys more than 15% stake in the target company. The open offer has to be given for purchase of an additional 20% stake in the target company.

Earlier, if the acquirer company bought shares through ADRs and GDRs, it did not need to go for an open offer even if the stake buying exceeded the 15% level. The company had to give open offer only when ADRs and GDRs were converted into shares. In fact, Bharti Airtel had already taken the clarification on the issue from Sebi in August, in which the regulator had said that in the Bharti-MTN deal, MTN will not have to give an open offer even if it acquires 25% stake in the company directly through ADRs.

But with the new guidelines of Sebi, which said that even if an acquirer bought a minimum of 15% stake in a target company through ADRs, which has the voting rights, the acquirer will have to give an open offer to acquire an additional 20% stake, which would not only make the deal much more costlier for MTN, but could also lead to violation of sectoral cap of foreign holding of 75% in the telecom sector.

It is learnt that Bharti Airtel and MTN are seeking exemption from giving open offer on the ground that they would not exercise the voting rights of the ADRs, which they would acquire under the deal.

However, the assurance of Sebi on the matter could not be ascertained. But a source argued that such an exemption is not possible. Particularly in the light of the decision of Sebi board to come out with the changed guidelines at a time when Bharti and MTN are engaged in discussion, clearly suggests that regulator is not in favour of giving any concession to them, the source added.

While both Indian and South African governments have expressed their willingness to support the deal, the former is not ready to make any far reaching changes to the laws governing financial markets, including moving to a regime of full capital account convertibility to make a dual-listing possible, which is demanded by the South African government.

Among others, the meeting between RBI-Sebi officials and that of South African government was attended by Prashant Saran, wholetime member, Sebi, Usha Narayanan, ED, Sebi, and Salim Gangadaran, chief general manager, foreign exchange department, RBI. While Saran, an ex-RBI officer heads the investment management department and a host of other departments in Sebi, Narayanan is in-charge of corporation finance department.

Gangadharan is from the RBI department that overseas all matters related to foreign exchange in the country. The delegation from South Africa had delegation comprised top officials from the National Treasury and the South African Reserve Bank.

The meeting was called by the finance ministry to discuss the multi-billion dollar Bharti-MTN deal and the officials are understood to have deliberated regulatory hurdles holding back the mega deal, including the issue of dual listing. According to the deal, while MTN will directly acquire 25% stake in Bharti, MTN’s shareholders will hold another 11% equity, taking their total holding to 36%. With this MTN will emerge as the largest shareholder in the Bharti. Bharti’s promoter Sunil Mittal’s stake in the company will come down to around 20% and that of SingTel to around 24% after the deal is completed.


September 25, 2009 - Posted by | Uncategorized |

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