Kolkata/Mumbai: Finance minister Pranab Mukherjee said on Wednesday that the Indian government backs the proposed merger of Bharti Airtel Ltd and South Africa’s MTN Group Ltd and it was looking into legal aspects related to a dual listing.

Taking the call: Pranab Mukherjee at the AGM of the Merchants’ Chamber of Commerce in Kolkata on Wednesday. Mukherjee said the legal implications of the Bharti-MTN deal were being looked into. Indranil Bhoumik/Mint

On whether India would alter legislation to allow the record $24 billion (Rs1.15 trillion) deal, the finance minister said: “We welcome the deal but in the context of the law of land. There are some legal implications, which are being looked into."

Bharti shares, rocked by changes in takeover rules, dropped 3.43%, or Rs14.7, to close at Rs413.4 on the Bombay Stock Exchange. The benchmark Sensex index dropped 0.99%, or 166.93 points, to close at 16,719.5.

On Tuesday, capital market regulator Securities and Exchange Board of India amended takeover rules, saying that an investor that acquires 15% of an Indian firm through American depository receipts or global depository receipts (GDRs) with voting rights needs to make a mandatory offer for a further 20%. The jury is still out as to whether this move would facilitate or hamper the proposed merger.

Some analysts believe the revision may help the deal, or at least assist the two telecom firms in choosing an alternative structure for the merger without hurting shareholder interest.

“The amendment may not impact the potential Bharti-MTN deal... as MTN would acquire an economic interest in Bharti," Rajiv Sharma, analyst at HSBC Securities and Capital Markets (India) Pvt. Ltd, and Tucker Grinnan of HSBC Ltd, wrote in a report.

In May, the Sunil Mittal-promoted Bharti Airtel announced its intention to acquire a 49% stake in MTN. In turn, MTN would receive a 36% ownership stake in Bharti—25% through offshore GDRs and 11% through cash.

A Bloomberg report, however, later suggested that Bharti had sweetened its bid to buy 49% in MTN by increasing the cash portion of its $14 billion offer.

The equity-cum-cash merger deal will create a $23 billion telecom services company with at least 200 million customers in 23 nations.

MTN may have to pay around Rs32,000 crore ($6.6 billion) based on current prices to buy an additional 20% stake in Bharti Airtel if it has to make an open offer to Indian shareholders.

The “probability of an open offer is very low and the Sebi decision is unlikely to be a deal breaker," said a research report on the deal by Anand Rathi Financial Services Ltd. “A possible way to obviate an open offer is that if MTN does not insist on voting rights for all GDRs. Then Bharti can make a preferential GDR allotment (25% economic interest), of which only 14.99% come with voting rights and the rest do not. This would be in MTN’s interest, in our view, given potential open offer financing issues."

Bharti Airtel’s current market capitalization is Rs1.62 trillion.

“If MTN wants voting rights for all GDRs, then post-acquisition of a 15% stake in Bharti, MTN would be required to make an open offer for additional 20% stake, which may take its holding up to 35% in Bharti," said the Anand Rathi report.

Voting rights may not be involved in the deal.

“The Bharti media release issued on 25 May mentioned clearly that MTN would acquire only an economic interest in Bharti, which...suggests that GDRs issued to MTN do not carry voting rights. Given this, we believe that the recent amendment may have no impact on the Bharti-MTN share-swap transaction," wrote HSBC’s Sharma and Grinnan.

A Reuters report said the two firms may not have approached the finance ministry for approval. The report quoted unnamed government officials.

Earlier in July this year, Sebi had said that MTN need not make an open offer to Bharti Airtel shareholders in India as its holding would be through GDRs.

On Tuesday, Mittal is said to have met Prime Minister Manmohan Singh and understood to have discussed issues such as dual listing.

Reuters reported that Singapore Telecommunications Ltd (SingTel) could maintain a 25% stake in the combined entity, citing a Morgan Stanley report.

“Indeed, if the Bharti-MTN transaction goes through and SingTel increases its stake in the new entity using debt (which is very likely), we see room for slight EPS (earnings per share) enhancement," the Morgan Stanley report said.

Singtel owns owns about 30.4% of Bharti Airtel.


Bloomberg and Reuters contributed to this story.