The complex Bharti-MTN deal has hit a big roadblock, with the stock market regulator mandating that an open offer would be required if more than 15 per cent of another company’s equity were being acquired even in the form of GDRs and/or ADRs. Till the Securities and Exchange Board of India’s belated ruling, the generally held view in the stock market fraternity was that Bharti-MTN would get around the mandatory 20 per cent open offer requirement, since the transaction would take place using GDRs/ADRs (which have no voting rights, and therefore there is no question of any control being acquired). Sebi’s order has, therefore, come as a surprise, and could be questioned on grounds of logic. The need for an open offer for 20 per cent of Bharti’s shares by MTN will mean the need for another long, hard look at the deal’s financials. The last word on the subject, however, has not been said since Bharti has reacted to the Sebi announcement by saying that the structure between it and MTN would be fully compliant with the laws in both countries. What exactly such an assertion means in terms of the technical requirements is not clear, but one (admittedly stretch) option might be to apply for an exception from Sebi, arguing that it is a merger and not an acquisition since an open offer applies only to acquisitions and not to mergers.
There are other legal hurdles that need to be dealt with, including the issue of capital account convertibility. Under the dual listing that is talked of, it will be possible for investors to buy Bharti shares in India and sell them in Johannesburg. While the rupee is already fully convertible for foreign investors, and though resident Indians can repatriate Rs 5 crore of capital each year, this may not be a very big concern; but the question is whether a wider capital account convertibility window should be opened through dual listing. There is, then, the issue of whether it is a good idea to have one set of laws for all Indian companies and another set of laws for cross-border M&As. In the case of the takeover code, do the 15 per cent threshold and the 20 per cent open offer rules apply just to Bharti or to Bharti-MTN?
The disclosure norms in India and South Africa, even the definition of who is an insider/promoter, are quite different. The actions of MTN shareholders/promoters in South Africa will have a bearing on the price of Bharti shares in India. So there could be events relating to share transactions by MTN insiders/promoters that Indian shareholders will know nothing about, but which will impact Bharti’s share price in India. Should this be allowed? Then there are issues relating to whether shareholders of a company not listed in India can be allowed to appoint shareholders of an Indian company — this obviously requires substantial rewriting of the Companies Act as well as of various listing agreements on the stock exchanges. Despite these and other complications, the government may still feel it is worthwhile to make the required changes in the law if that allows Indian firms to acquire significant holdings in overseas firms. It will have to be kept in mind, however, that this could create an unfair structure for firms that are wholly domiciled in the country.
