Friday, September 25, 2009

Bharti MTN Deal Hits Snag Over Dual Listing

The proposed $23-billion Bharti-MTN merger has received yet another knock after the Indian government announced today that dual listing is not possible unless there is a radical shift in policy, according to media reports.
The South African government is seeking dual listing but India through industry minister Anand Sharma said unless there is a change in policy this will not happen. The policy needs a change on rupee convertibility.
A report by ENS said a policy change on full convertibility of the rupee on capital account is not possible at present.
"At this stage nobody is in a position to talk about the policy change on convertibility. However, the government will always be supportive of the initiative by an Indian company for an overseas transaction and acquisition," Sharma said.
The two telecoms giants have until the end of September to seal the deal.
On the issue of new FDI rules permitting companies to exceed the foreign investment limits in different segments, Sharma is quoted in the report saying that the sectoral caps cannot be breached. "When the decision was taken was by the empowered group of ministers, we were very clear that the sectoral caps will not be breached in sensitive sectors."
The Bharti-MTN deal has attracted the attention of the respective governments. A six-member South African (SA) team spent over two-and-a half hours yesterday flagging off its concerns on a host of issues, including the latest change in the rules governing takeovers in India.
South African officials, who met the Securities & Exchange Board of India, or Sebi, the Reserve Bank of India, or RBI and finance ministry officials in Mumbai, sought an exemption from a clause that mandates purchase of a 20% stake from minority holders if an entity's stake in a company touches 15%
The SA delegation, comprising officials from the national treasury and the country's central bank, met Indian officials, including KP Krishnan, joint secretary in the finance ministry, who is also on the board of Sebi, to overcome the potential stumbling block.
Under the proposed scheme of arrangement announced in May, MTN will hold a 36% stake in Bharti Airtel through Global Depository Receipts to be listed in Johannesburg.
The South African government has also sought dual listing of the companies which is not favoured by RBI, as it would require the full convertibility of rupee. Under dual listing, where the shares are listed on different exchanges (Indian/Johannesburg) it allows investors an option where they want to trade besides it provides liquidity.
South Africa wants Bharti to be allowed dual listing in Johannesburg so that its shares, and not depository receipts, can be traded in South Africa. The problem here is that dual listing is linked to the full convertibility of the rupee which is not allowed in India. The Indian rupee is partially convertible with entities free to exchange it to pay for trade in goods and services

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