Bharti-MTN deal may leave SingTel cold
26 May 2009
Amidst a swirl of speculation on whether the proposed Bharti-MTN transaction would run foul of Foreign Direct Investment norms in India, and perhaps South Africa, the deal makers themselves are confident that there are no compliance issues involved on either side. Here is a CNBC-TV18 report.
Could regulatory roadblocks disconnect Bharti's second call to MTN? Well, sources with knowledge of the regulatory and compliance elements of the deal suggest the new FDI guidelines in the form of press notes 2, 3 and 4 of 2009, issued earlier this February, have proved to be a key enabler for this transaction. Under the deal, likely to be concluded over the next two months, MTN will acquire a total of 36% of Bharti Airtel's expanded equity. Analysts estimate that Bharti will issue 732 million new shares to MTN equaling a 25 per cent stake and another 336 million shares to MTN shareholders equaling an 11 per cent stake. Bharti's equity will expand by 56 per cent post acquisition (including the new GDR's) to 2,966 million shares.
In effect, the additional headroom that Bharti has to issue equity to foreign firms is at the heart of making the transaction possible. The deal makers say there is huge headroom to issue fresh equity and point out that barring future amendments, the entire transaction is compliant with Indian laws. On the South African front too, they have taken note that Vodafone has recently taken control of Vodacom South Africa with a 65 per cent stake, overcoming political concerns and unionized opposition. Sources close to the deal say, MTN knows what it is doing and is fully aware of all regulatory requirements.
Bharti-MTN deal makers are also confident that a radical change to the present FDI norms is unlikely. The comprehensive review of the FDI guidelines was carried out by the UPA government after detailed discussions on the basis of recommendations by a group of ministers that was headed by Pranab Mukherjee. In effect, given that Mukherjee is back as the Finance Minister while Cabinet Minister Kamal Nath, who was the Commerce and Industry Ministry in the previous government, and is likely to retain the industry portfolio this time around, would be unlikely to change their mind within months of first having instituted the policy reform.