Bharti-MTN deal may trigger open offer, FIPB intervention

The Bharti Airtel-MTN deal may trigger a mandatory open offer with the Securities and Exchange Board of India saying that an open offer will now apply to entities acquiring Global Depositary Receipts or American Depositary Receipts with voting rights in an Indian company.

Purchasing GDRs or ADRs of a listed Indian firm representing 15 per cent or more of its shares will, accordingly, trigger a mandatory open offer for another 20 per cent stake.

The changes in SEBI rules would make open offer obligations applicable in the case of ADR and GDR holders with voting rights in the proposed $24-billion (over Rs1,15,000-crore) Bharti-MTN deal as well.

Under the proposed merger agreement, Bharti will issue MTN a 25 per cent stake in Bharti-Airtel, and MTN shareholders a stake of 11 per cent, both in the form of GDRs. Bharti would get a 49 per cent stake in MTN in exchange for this, and for an additional cash payment of $7.6 billion (reported to have been revised to $10 billion subsequently).

While the government has fixed the foreign direct investment (FDI) limit for the telecom sector at 74 per cent, all investment proposals with FDI above 49 has to come via FIPB.

Also, the 30 per cent stake of Singapore telecom firm SingTel in Bharti would further complicate matters for the merger with MTN.