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FIPB starts examining MTN-Bharti deal

FIPB starts examining MTN-Bharti deal
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First Published: Wed, May 27 2009. 11 30 PM IST
Updated: Wed, May 27 2009. 11 30 PM IST
New Delhi: The Foreign Investment Promotion Board (FIPB), the government arm that approves foreign investments into India, has started examining the proposed merger of Bharti Airtel Ltd and MTN Group Ltd and has sought details from India’s department of telecommunications (DoT), said two government officials.
Bharti and MTN are working on a deal worth $23 billion (Rs1.09 trillion) in cash and stock, under which the Indian firm would get 49% of MTN, after MTN and its shareholders get a 36% stake in Bharti, with a full merger being the long-term goal.
“We are examining the issue. We have written a letter to DoT seeking more clarity,” a senior finance ministry official said, on condition of anonymity.
New guidelines for foreign direct investment (FDI) unveiled by India earlier this year may help the deal go through, the official added, but only if Bharti both “owns” and “controls” MTN. India’s definition of ownership is a minimum 51% stake in the firm and its definition of control refers to management.
The official added that these details aren’t currently known and that the government is yet to receive information from Bharti and MTN at this stage.
The deal is still very much in the making and the firms have given themselves till 31 July to close it.
A senior DoT official confirmed that the finance ministry had sent it a letter, but declined further details. This person asked not to be identified.
However, analysts say the deal is unlikely to face any major regulatory hurdle. “The government has to do its due diligence, especially when we are talking of the largest-ever deal. (But) I would be surprised if both sides have not done their homework this time around,” said Mahesh Uppal, director at Com First (India) Pvt. Ltd. That opinion was echoed by Romal Shetty, director (telecom) at audit and consulting firm KPMG.
Under the new FDI guidelines if MTN is owned and controlled by Bharti, then MTN’s proposed 36% stake in Bharti will not be considered foreign investment, even though the company is based outside India. “If a company is owned and controlled by Indians, one should not worry about further downstream investment by such a company, except in sensitive sectors,” said an official at India’s commerce and industry ministry, asking not to be identified.
Meanwhile, Bharti may structure the sale of its stake through its holding company and parent firm so that there is no need for an open offer, two bankers and a lawyer said.
Under Indian regulations, the purchase of 15% or more in a listed firm triggers an open offer to buy a further 20% from the market. “We believe the proposed transaction structure would not trigger a mandatory tender offer in India,” Bharti Airtel said on Wednesday in an emailed response to Reuters.
Bharti also said the deal would meet Indian laws that cap FDI in telecom at 74%.
“Bharti Airtel’s current FDI is in the low 40%... Bharti Telecom will continue to be the largest shareholder in Bharti Airtel and together with MTN and Singapore-based telecom firm SingTel shall have a majority economic interest in Bharti,” the company said.
Bharti’s effective foreign shareholding based on the new FDI guidelines is 54.4%, with SingTel holding as much as 15.6% and foreign institutional investors holding 20.7%, Sanjay Chawla, a senior analyst with Anand Rathi Financial Services Ltd wrote in a report released on 25 May. After the deal, this would effectively rise to 70.8%, with MTN holding 24.7% and MTN shareholders 11.3% stake, the report added.
Reuters contributed to this story.
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First Published: Wed, May 27 2009. 11 30 PM IST
More Topics: FIPB | MTN | Bharti | KPMG | Shareholders |