Prime Minister Manmohan Singh is expected to meet South African President Jacob Zuma in Pittsburgh later this week, where the two leaders will be attending the Group of Twenty summit. There are likely to discuss the proposed merger of Bharti Airtel and the MTN Group.
That two national leaders could end up discussing a private sector corporate deal tells us a lot. Bharti and MTN want to join hands to create a telecom multinational with more than 200 million customers in around 23 countries. But the merger has got mired in a regulatory tangle that Singh and Zuma are aware of. The South African government seems to be treating MTN as a national champion and wants it to retain its South African character. The most widely discussed route around this problem is a dual listing in India and South Africa, something that Indian corporate laws and capital controls will not allow.
A dual listing essentially means that the two companies will continue to be listed in their respective regulatory jurisdictions while they agree to share the risks and rewards in a jointly managed enterprise.
Mint had reported on 17 September that key laws such as the Companies Bill and the Foreign Exchange Management Act would need to be changed to allow a dual listing for Bharti and MTN.
It is very unlikely that the government will make major changes in key economic legislation to allow one corporate deal to sail through. But the Bharti-MTN regulatory tangle does point to a major problem: Indian companies are trying to globalize at a faster pace than the underlying legal structure allows them to.
This mismatch is likely to be a source of tension in policymaking. Indian companies have already learnt to weave their way through the gaps in capital controls, even as there is a need to keep some control over the capital account till India meets some macroprudential prerequisites such as a low fiscal deficit and strong banks.
But if the end game is an open capital account, as it eventually should be, then it is time the government and regulators used the Bharti-MTN case to a hard look at some regulatory restrictions that hold back cross-border mergers.
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