Sunday, September 27, 2009

Bharti-MTN Deal

The $ 24 billion Bharti- MTN merger deal has become an issue of international finance ,as South African Govt wants the dual listing of the merged company . The positive signals by the UPA Government like the support of Pranab Mukherjee and initiative of PM Manmohan Singh in G 20 summit can be inferred as the start of major leap in the direction of capital account convertibility. If deal goes through, MTN will hold 36 % in Bharti Airtel and Bharti will acquire 49 % in MTN.
The dual listing of the merged identity in both Bombay Stock Exchange and Johannesburg Stock Exchange requires full capital account convertibility of Rupee. This implies that the equity share of Bharti Ltd can be bought and traded in South African Rand. Till now the cross listing of companies was allowed which implied partial convertibility. The equity shares were issued to the custodians outside India, which were issued in the form of GDRs/ADRs to foreign investors. The ADR/GDRs can be converted to equity shares on the request of investors but once converted; they cannot be changed to ADR/GDRs.
What does the dual listing have implications for India Inc? Is it feasible for India to take such a major step at this stage (when the conditions laid by Tarapore Committee are far beyond realization)?

3 comments:

sumit said...
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sumit said...

Usually companies doesnt go for dual listing. However der are few examples accross globe like Unilever in UK & Netherland, ABB in Sweden & Switzerland. Unlike usual mergers..where only one company with higher stake exists and other is merged into the former. However though dual listing companies are called merged entities-both the companies exists just like a joint venture.

Companies usually go for dual listing for 3 main reasons...1.To take advantage or avoid disadvantage of Tax rules different in both countries (for ex. they dont have to pay capital tax for this type of merger activity unlike regular merger) 2. When both the companies are very strong and companies reflect national interest, where both companies cannot forego there existance. 3. Where they dont want the share prices to fall down(sometime it happens due to flowback of shares).

However according to me, it will be a new step for India to enlist its name in the list of dual listing countries and also a reason to make India rupee fully convertible.

Regards
Sumit Chintawar
IBS Hyderabad

ranjeet said...

CAC means complete freedom/ease to convert local financial assest(in domestic currency)into foreign financial assets (in foreign currency) and vice versa at martket determined rates.

In the Bharti-MTN deal, it has been agreed to have dual listing for the merged entity. A dual-listed company is a corporate structure that involves two listed companies with different sets of shareholders sharing ownership of a single operational business. This requies to have full CAC on both sides. However, India still dont have full CAC.

Even though the FM and honorable PM have shown keen interst in the deal the regulators in India seems to have differnt motive. A new guidelines of Sebi says that if an foreing entity is acquiring a minimum of 15% stake in a target Indian company through ADRs (which has the voting rights) the acquirer will have to give an open offer to acquire an additional 20% stake. Earlier (2 month back when Bharti had clarified the isse with SEBI) the open offer was valid only when the acquision was done through equities and not through ADRs. Steps like this, 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.

Unless the regulators understand the importance of the deal and came out with full support by modifying the existing rules, the deal will have tough time ahead.