Bharti, MTN chiefs meet Pranab, discuss deal

Sunil Mittal, chairman of Bharti Airtel and Phuthuma Nhleko, chief executive of South Africa’s MTN Group, today met Finance Minister Pranab Mukherjee in the afternoon, just a few days after the two companies announced extension to September 30 of their “exclusivity” talks for a possible merger. 

A Bharti spokesperson confirmed the meeting. The two also met corporate affairs minister Salman Khurshid, who asked them to keep his ministry in the loop. 

Sources say the finance ministry’s role would be crucial in getting the deal through its various regulatory hurdles. The key issue that has caused the deal to be revived is the change in the Foreign Direct Investment 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 per cent in each of these companies. Earlier, the proportionate foreign holding was calculated at every layer. 

Under the new policy, Bharti has leeway 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 is not in consonance with the sectoral caps imposed on various sectors. In telecom, the sectoral cap is pegged at 74 per cent and many opine this limit — if the earlier rules existed — would have been breached by the proposed deal. However, the new regulations on FDI were cleared by a group of ministers chaired by Mukherjee himself. 

The deal is also facing resistance from some shareholders of Bharti, who have been telling the Securities and Exchange Board of India (Sebi) that MTN kegally 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 two telecom companies materialises (provided it does not convert its Global Depository Receipts into equity).

However, banking sources say MTN has no intention of converting its GDRs into equity and the structuring of the deal would be so done as to have enough safeguards and rights incorporated, as GDR holders in Bharti Airtel.

Sources also said 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, since the two companies are looking at a merger, though not in the first phase.

The proposed deal will create the world’s third-largest telecom company, with over 200 million subscribers and over $20 billion in revenues, if it goes through. Mittal’s Bharti will acquire a 49 per cent “economic interest” in MTN. In return, MTN will acquire a 25 per cent “economic interest” for $2.9 billion and MTN shareholders will acquire another 11 per cent in Bharti Airtel. In all, MTN and its shareholders will acquire 36 per cent in Bharti Airtel, in the form of GDRs that will be listed on the Johannesburg stock exchange.