PM set to take up Bharti's cause with SA president at G20- Telecom-News By Industry-News-The Economic Times
PM set to take up Bharti's cause with SA president at G20
20 Sep 2009, 0000 hrs IST, Rohini Singh, ET Now
Pravin Gordhan and Lesetja Kganyago may not exactly be household names in India, but these two gentlemen, the South African finance minister and the country’s director-general of the treasury department, along with President Jacob Zuma will over the next week-and-a-half determine whether Bharti Airtel chairman Sunil Mittal will be able to achieve his dream of forging a transcontinental alliance spanning 23 countries and 200 million subscribers with South Africa’s MTN.
Hopes are pinned on a crucial meeting between Prime Minister Manmohan Singh and the South African president at the G20 summit in Pittsburg, USA, this week.
At the meeting, which is expected on the sidelines of the G20 summit, the Mr Zumo is expected to raise the issue of dual listed companies (DLCs) with the Indian PM. If Mr Singh gives an assurance that India will work towards allowing DLCs, the South African government’s concerns could be considerably addressed. But though the PM is likely to indicate the Indian government’s support for the deal, it is unlikely that he can provide any sort of assurance on a change of legislation to facilitate dual listing.
A close friend of Mr Mittal told ET NOW, “The deal now depends on how much the Indian government can convince the South African government. If an agreement on facilitating the deal has to be reached, it will be done when the two leaders meet. Last week, Mr Mittal met the PM and apprised him of the deal and the hurdles it could encounter.”
After 7-8 months of hectic and tortuous negotiations, Bharti Airtel and MTN have finalised the structure and details of a $24-billion cash-cum-stock transaction, but there is still uncertainty over the final outcome because of the South African government’s insistence that it wants clarity on whether India will allow a DLC structure before it approves the deal, several persons with direct knowledge of the transaction told ET NOW. A person close to the Bharti Group, who spoke on the condition of anonymity, said the deal was done and was now up to the governments. “While our deal is all set to be set... and legally ready to be signed, it is subject to necessary government approvals before signing,” the person said.
Bharti officials also met senior finance ministry officials last week to get a better sense of the Indian government’s position on DLCs. A group of SA officials is in India this week to meet Sebi and RBI to discuss the matter. A DLC structure allows two listed companies in different companies to retain their individual identities and separate sets of shareholders while at the same time combining their operations and cash flows and ensuring similar dividend payments to shareholders in both companies.
Generally, the two companies will have a common board and a unified management structure. For DLCs to be allowed in India, several laws, including the Foreign Exchange Management Act (FEMA) and the Companies Act, will have to be amended and full capital account convertibility will have to be allowed. According to at least two finance ministry officials, DLCs do not figure anywhere on the government and RBI’s radar at the moment. This is mainly because DLC implies a situation close to full capital account convertibility, which is neither on the government or RBI’s agenda.
Asked by ET NOW on how the South African president views the proposed deal, Vincent Magwenya, spokesperson for the president, said, “It’s not a question of whether the president supports the deal or not, but an issue of the transaction satisfying all regulatory requirements and other applicable considerations in both countries.” On whether the South African government is stalling the deal, Mr Magwenya said, “Why would we want to stall the deal? But regulatory issues have to be satisfied in both countries.”
SA treasury nod needed before deal’s signed
Mathews Phosa, treasurer of the ruling African National Congress (ANC), told ET NOW: “It’s premature to comment on the Bharti-MTN deal since the two companies have not yet briefed the ANC. But when a similar deal was being negotiated last year between Anil Ambani-controlled Reliance Communications and MTN, the issue there was primary listings in both countries. Indian law does not permit it and therefore there was a conflict of law. But it will not be wise, at this stage, to comment on the Bharti-MTN deal.” ANC is the ruling party in South Africa and plays a big role in the government’s decision-making process.
Unlike India, where regulatory clearances are required after a deal has been signed, South African regulations require the country’s treasury department to clear a transaction before it is signed. And so, what was thought to be a done deal that the Bharti board was expected to ratify last weekend, hangs in the balance with both sides unsure about the outcome. The deal and the structure is in place. No further negotiations are required between the two companies. But it’s now in the hand of politicians and there’s no point trying to second guess them, says a person close to the transaction.
While Bharti’s top two negotiators—Mr Mittal and his trusted confidant and board member Akhil Gupta, have told outsiders that they are confident that the deal will get approved, a close friend of Mr Mittal told ET NOW: “Sunil believes the chances of the deal going through are 50:50.” And while no one in the Bharti camp says so explicitly, there is some frustration about how the DLC issue is delaying, if not derailing, the transaction. Bharti and MTN have already extended the deadline for their exclusive talks twice and with the third deadline of September 30 fast approaching, there is a feeling in both camps that a stalemate on the regulatory front will not augur well for the deal.
The exclusivity period could be extended by another few days. But it will be difficult to extend it over a long period, says a person familiar with the situation. This person was, however, confident that the South African government would take its decision before the expiry of the month-end deadline.
A senior official in the South African government told ET NOW that the South African character of MTN would have to be maintained. “Bharti can come in as a financial investor in MTN, but the control and management of MTN will rest with South Africans. The company had indicated to us that it wants to move towards a full merger but a merger would result in the delisting of MTN from JSE. Our policy position is to retain South African corporations onshore and we are not comfortable reversing it. Bharti has been aware of it. And in that context, a DLC structure is the next best option. As far as the share swap is concerned, we don’t see any regulatory hurdles on that front. But Bharti has to take a call on whether it just wants to come in as a minority investor.”
“We have been engaging with the Indian government on the issue of DLC and have been apprised that such a structure is not permissible under the current legislation. The views of the Indian Central Bank has also been communicated to us. We will communicate our views to MTN shortly,” he added. While Indian government officials support the deal, they are unwilling to provide any commitment on changing laws and regulations.
“I think the general view from here is that if you have a worthwhile Indian multinational company wanting to do something and if there is something that the government can do to support that in any way... as long as you don’t transgress any red lines in this matter... we will do it. If there is some comfort that these governments would like from our side... I presume that should be forthcoming,” India’s nation security advisor MK Narayanan told ET NOW.
The current transaction that Bharti and MTN have finalised involves the Indian company taking a 49% stake in MTN, and the South African company and its shareholders acquiring a 36% economic interest in Bharti. While Bharti is learnt to have told MTN and the South African company that it would proceed to the next step of a merger in the next five years only if India allows DLCs by then, the South African government is pressing for assurance that the Indian government will indeed allow DLCs.
However last year when the Anil Ambani controlled Reliance Communications was in talks with MTN, the Reserve Bank had indicated to RCom that it was not in favour of full capital account convertibility.
The DLC issue has however been somewhat complicated by an indication given by finance minister Pranab Mukherjee to his South African counterpart last month that the such a structure was possible without change in current Indian laws. The treasury department of South Africa followed up this meeting by writing to the Finance Ministry seeking an “agreement” on DLCs before the September 30 deadline stating that the “matter was urgent.”
Subsequently, the finance minister appears to have modified his position. Last week, he told ET NOW: “There is a provision for the dual listing of companies . The South African (finance) minister (Pravin Gordhan) met me at G20 finance ministers meeting (in London earlier this month) and there I suggested to him that this arrangement is to be looked into in the Indian context... There is no assurance as such, but I told him that we will look into this matter and we will see what can be done. Meanwhile, while the twists and turns over the DLC continue, the structure and details of the transaction have been finalised, say people familiar with the development.
According to the proposal that has been approved by both companies, Bharti will pay a total of $10 billion in cash to MTN shareholders and issue 442 million new shares to MTN shareholders worth an additional $4 billion for acquiring a 49% stake in the South African company. Bharti will also raise $3 billion by issuing fresh shares to Singtel on a preferential basis.
