MTN suitors are facing a major problem as US bankers have made it clear they cannot fund the acquisition/merger of the South African teleco until it spins off or demerges its businesses located in at least four countries.
Under US laws, companies/ banks based in the country cannot finance deals in markets such as Iran, Liberia, Syria and Sudan, against whom the country has imposed comprehensive sanctions. Merchant bankers have been assigning this as a key reason for companies unable to raise debt to finance buying stake in MTN.
However, merchant bankers say these markets are important for MTN as they constitute over 18 per cent of its total subscriber base and as much as 25 per cent of its subscriber base outside South Africa. Also, the four markets provide 11 per cent of MTN's revenues.
Bankers say that this could be the key reason why Reliance Communications is not looking at raising debt for the deal. Unlike the Bharti Airtel model, which was looking at merging MTN with itself, the Anil Ambani company has been looking at some kind of a collaborative arrangement that could include a share swap, thus doing away with a cash transaction.
Bankers point out that MTN Group Chairman M C Ramaphosa is well connected politically and is widely expected to be the SA presidential candidate in the elections slated for next year.
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As a result, the company's management is clear that there is no question of selling controlling stake.
Meanwhile, investment bankers say that talks have already begun between MTN and Reliance Communications in Johannesburg.
Reliance and MTN have agreed to an "exclusive" talks for the next 45 days. The announcement was made on Monday after Bharti announced that it was pulling out of the negotiations with MTN last week.