Fema regulations will need amendment
In a statement that has major implications for cross-border deals with Indian companies, Finance Minister Pranab Mukherjee today said the government was open to permitting dual listed companies.
The government’s decision provides a major impetus to the proposed $23 billion Bharti-Airtel deal with MTN, which is facing scrutiny from the South African government over affirmative action policies. The deadline for concluding the negotiations is September 30.
The South African government had also recently asked India’s finance ministry to clarify whether Indian regulations allowed for dual listing of companies.
“There is a provision for dual listing of companies. The South African minister met me at the G-20 finance ministers’ meeting and I suggested to him that this arrangement is to be looked into in the Indian context,” Finance Minister Pranab Mukherjee said today.
“There is no assurance as such, but I told him [the South African minister] that we will look into this matter and we will see what can be done,” he added.
Asked whether dual listing can be done under current laws, Mukherjee said the issue is being examined.
A senior government official said that under the present norms, Indian companies had to go for depository receipts. Although a part of the restrictions were on account of capital account convertibility issues, the official said regulations under the Foreign Exchange Management Act (Fema) would need to be amended for dual listed companies.
The amendment can be done through an executive order once a policy decision is taken. This will, however, require an agreement between various regulatory agencies, including the Reserve Bank of India, which governs Fema, Securities and Exchange Board of India (Sebi), which is the regulator for capital markets, and the finance and corporate affairs ministries.
Queried on the same issue, a Sebi panel member said: “There is no clarity. The Sebi board will have to meet and take a call on this.”
A dual listed company is a corporate structure that involves two listed companies with different sets of shareholders sharing ownership of single operational businesses.
In a dual listed company, both companies (MTN and Bharti Airtel in this case) continue to exist and to have separate shareholders, but they agree to share all the risks and rewards of the ownership of all operating businesses in a fixed proportion.
These details are generally laid out in an equalisation agreement that is signed between the parties, so that the shareholders of both companies are given equal treatment in their voting rights.
The agreement covers dividends, liquidation and corporate governance. Usually the two companies share a single board of directors and have an integrated management structure. There are many examples of dual listed companies, such as BHP Billiton and Rio Tinto Group.
In the case of the MTN-Bharti deal, experts say dual listing would resolve a major impediment between the South African government’s stated objective of maintaining the company’s African character and pursuing Black empowerment policies in management structure and the Mittals’ desire to retain management control. Under dual listing, the companies would maintain their separate identities without compromising the advantages of a merger.
A dual listing structure would also remove the time-consuming requirement for the companies to take regulatory approvals from the various countries in which they operate should they go in for a conventional merger.
Experts, however, say the principal disadvantages in dual listing lie in compromising transparency to shareholders and integrating managements.
After a failed attempt a year ago Bharti and MTN announced in May that they are resuming talks for a complex cash-and-share-swap deal, the deadline for which ends in September.
Under the deal Mittal promoted Bharti Airtel is to acquire a 49 per cent economic interest in MTN. In return MTN will acquire a 25 per cent economic interest in Bharti Airtel for $ 2.9 billion and MTN shareholders will acquire another 11 per cent.
