New Delhi / Mumbai: South Africa’s MTN Group Ltd and its shareholders can buy 36% in Bharti Airtel Ltd via global depository receipts (GDRs) without triggering a mandatory open offer, the Securities and Exchange Board of India (Sebi) said.
MTN and Bharti are in exclusive talks over a complex deal that could lead to a full merger, creating the world’s No. 3 wireless group with at least 200 million subscribers and combined revenue of $20 billion (Rs97,000 crore).
Reaching a deal: Airtel towers in New Delhi. Bharti had sought clarifications on takeover rules that require an acquirer of a 15% equity stake or more to make an open offer for an additional 20% from other shareholders. Harikrishna Katragadda / Mint
Bharti had sought clarifications from the regulator on Indian takeover rules that require an acquirer of a 15% equity stake or more to make an open offer for an additional 20% from other shareholders.
“MTN and/or its shareholders would be required to comply with the requirements of (open offer) only upon conversion of the GDRs into equity shares with voting rights,” Sebi said.
A New Delhi-based fund manager said the clarification removed uncertainty and would help the companies reach a deal.
“Good for Bharti. Better for MTN. Quite a breather for them, otherwise they would have to cough up more money for the open offer,” said R.K. Gupta, managing director at Taurus Asset Management Co. Ltd.
“It has to be seen how long MTN and its shareholders would like to continue with GDRs. They don’t get voting rights. I think this is a development which needs to be watched,” he said.
Shares of Bharti Airtel, which have a market value of $31.1 billion, ended 3.48% up at Rs810.90 on the Bombay Stock Exchange on Tuesday, a day when the benchmark index, the Sensex, gained 0.9%. MTN climbed 2% to 122.35 rand in Johannesburg, its biggest intraday gain since 19 June.
The Sebi letter, which was dated 22 June but made public on Tuesday, also said Bharti had proposed to acquire a 49% holding in the South African firm directly or through its affiliates.
“This is more from a safety perspective for Bharti,” said a banker with direct knowledge of the deal, referring to the open offer clarification.
“The conversion to shares will not take place soon, unless everything is worked out between the two firms,” said the banker, who did not want to be named due to the sensitivity of the issue.
Banking officials had earlier told Reuters the open offer could be done away with by issuing GDRs to MTN, or the South African firm could acquire a stake in Bharti Airtel’s parent unlisted Bharti Enterprises or holding company Bharti Telecom Ltd.
Bharti Airtel, which has agreed to exclusive talks with MTN until the end of July, did not immediately respond to a query regarding the regulator’s statement.
Meanwhile, MTN said on Monday it was still in discussions with Bharti but gave no further details.
MTN said in a cautionary announcement, which it is obliged to issue under Johannesburg Stock Exchange rules, that talks were still in progress.
The chief executive of MTN’s biggest shareholder, state pension fund Public Investment Corp., told Reuters in June the fund supported the talks but said there was “room for improvement” on the price.
Bharti chairman Sunil Mittal said last week the group was not working on sweetening the deal, but did not rule it out.
Meanwhile, Singapore Telecommunications Ltd, (SingTel) South-East Asia’s largest phone company, said it continues to be actively involved in key aspects of the proposed merger between Bharti and MTN. “SingTel will remain a significant shareholder and strategic partner in Bharti, after the transaction,” the Singapore-based company said in an emailed statement on Tuesday. The South-East Asian operator said it has appointed financial and legal advisers for the deal. REUTERS
Bloomberg contributed to this story.