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Business – Bharti-MTN deal: 48 hours on, will it be just a dead line?

Rohini Singh & Shaji Vikraman

NEW DELHI/MUMBAI: This will be a make-or-break 48 hours for the $24-billion transaction between India’s largest telco Bharti Airtel and Africa’s
largest mobile operator MTN with the South African government expected to communicate its stance on Tuesday to the two companies seeking to create the world’s third largest mobile firm.

South African president Jacob Zuma will consult the team of government officials that visited India last week as well as the ruling African National Congress and take a decision on whether the government’s insistence on a dual listed company or DLC structure can be waived.

“The ANC is willing to listen. South Africa has lost many of its crown jewels to foreigners but it will be premature to assume that the door has been shut on the deal,” says ANC treasurer Mathews Phosa, holding out hope for the transaction which awaits the approval of the South African government.

The period for exclusive talks between Bharti and MTN is set to expire on September 30. “Bharti will take a definitive stand on the deal on Tuesday,” a person close to the transaction told ET NOW. A short extension of the deadline will only happen if South Africa gives the go ahead for the deal, the person said, on condition of anonymity. “Otherwise, the two companies will call it off,” he added.

Senior Bharti managers are scheduled to travel to Thailand for a pre-planned offsite meeting for the group’s top leadership, which begins on Wednesday, but whether the atmosphere at that meeting is jubilant or funereal will be dependent on decisions taken thousands of miles away.

Indian policy makers, meanwhile, have suggested to their South African counterparts who were in the country last week that they could consider the option of a structure whereby MTN’s shares could be listed in India in the form of Indian Depository Receipts (IDRs). These are shares issued by foreign companies in India, denominated in rupees and sold to local investors.

In a mirror image of Global Depository Receipts or GDRs or American Depositary Receipts (ADRs) — an overseas firm will issue its shares to an Indian depository which will then issue depositary receipts to local investors. The IDRs represent the underlying shares of the foreign company.

A senior government official in India with knowledge of the talks said the government would facilitate this. IDRs, he said, are fairly close to capital account convertibility (the proceeds are freely repatriable). “In the post-global economic crisis scenario, this could send out a politically strong message,” the official said. However, it is not clear if the two companies are considering the IDR option at this juncture.

The proposed deal has morphed from what was initially a cross-border transaction between two companies, albeit more complex than usual, to one where two governments are heavily involved.

The final decision by the South African government may take into account non-commercial concerns such as the impact on bilateral relations with India.

Prime Minister Manmohan Singh expressed his support for the deal in the course of discussions with the SA president on the sidelines of the G 20 meeting in Pittsburgh, US.

The proposed multi-billion dollar deal had hit a roadblock with the South African government insisting that India amend its laws to allow DLCs. Such companies retain their separate legal identities and listings on stock exchanges while entering into “equalisation” agreements to collectively run operations and share profits or losses. Such arrangements are seen as protecting the companies’ national identities.

The senior Indian official quoted earlier said both companies could achieve the same objective through IDRs instead of the dual listed companies structure.

The person familiar with the developments quoted earlier said Bharti has incorporated every demand made by MTN.

MTN will remain a South African-domiciled company where key decision makers such as the chairman, CEO and CFO will continue for at least three years. It would continue to be headquartered in South Africa where all future growth in Africa and the Middle East would be captured through MTN.

What the South Africans have not been able to adequately explain is the sudden insistence on DLC. “The deal was announced in lucid detail four months ago and this is essentially a bilateral private partnership,” the person said.
Prime Minister Manmohan Singh took up the issue with South African president Jacob Zuma when they met on the sidelines of the G20 meeting in Pittsburgh last Friday. Extending full support to the deal, Mr Singh had expressed the hope that there wouldn’t be any discrimination against Bharti.

He is understood to have raised the issue of discrimination because South Africa has allowed several foreign companies, especially from Europe, to take control of key assets without a DLC structure. Vodafone has been allowed to acquire 65% stake in Vodacom, the largest telecom operator in South Africa, with full management control. Similarly, Barclays Capital has been allowed to acquire ABSA Capital, the largest bank in SA.
On its part, South Africa is now keen to expedite the finalisation of a Bilateral Investement Protection Agreement or BIPA, besides a comprehensive economic cooperation agreement.

The current deal, it is goes through, will be reviewed by the two companies at a later date. A merger is an ‘aspirational target’, says the person close to the deal, but Bharti has made it clear to the South African government that it will not change its shareholding in MTN for five years.

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September 29, 2009 - Posted by | Uncategorized |

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