Bharti, MTN Chiefs meet Finance Minister

Bharti, MTN Chiefs meet Finance Minister

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Bangalore: Bharti Airtel Chairman, Sunil Mittal and Phuthuma Nhleko, Chief Executive of South Africa's MTN Group, met Finance Minister Pranab Mukherjee to discuss the proposed deal between the two firms. The discussion comes just days after the two companies announced extension of their "exclusivity" talks for a possible merger to September 30.

Both parties also met Corporate Affairs Minister Salman Khurshid, who asked them to keep his ministry in the loop. According to sources, the finance ministry's role would be crucial in getting the deal through its various regulatory hurdles. The key issue that has caused the revival of the deal is the change in the Foreign Direct Investment (FDI) rules under Press Notes 2, 3 and 4 in February this year.

Under the new rules, proportionate foreign holdings through various multi-layered investment companies will not be calculated for the purpose of FDI, as long as Indians hold 51 percent in each of these companies. Earlier, the proportionate foreign holding was calculated at every layer.

Under the new policy, Bharti has scope to bring in more equity through FDI. The new rules, however, have been opposed by the Reserve Bank of India and sections of the government, who say it is not in consonance with the sectoral caps imposed on various sectors. In telecom, the sectoral cap is pegged at 74 percent and many opine this limit (if the earlier rules existed) would have been breached by the proposed deal.

However, some shareholders of Bharti have been telling the Securities and Exchange Board of India (SEBI) that MTN legally needs to make an open offer to shareholders. The Securities Appellate Tribunal will be hearing on August 28 an appeal from a shareholder seeking greater clarity on a SEBI order, which exempts MTN from making an open offer to shareholders of Bharti if a merger deal between the two telecom companies materializes.

Banking sources say that MTN has no intention of converting its GDRs (Global Depositary Receipts) into equity and the structuring of the deal would be done in a manner, so as to have enough safeguards and rights incorporated. According to sources, Indian laws do not allow a company to go for dual listing or even secondary listing on the stock exchange of another country. This could be an issue later, since the two companies are looking at a future merger.

If the deal goes through, Bharti will acquire a 49 percent "economic interest" in MTN. In return, MTN will acquire a 25 percent "economic interest" for $2.9 billion and MTN shareholders will acquire another 11 percent in Bharti Airtel. In all, MTN and its shareholders will acquire 36 percent in Bharti Airtel, in the form of GDRs that will be listed on the Johannesburg stock exchange.

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