New SEBI takeover rules may hurt Bharti-MTN deal

In a potential blow to the Bharti Airtel's efforts to create the world's third largest wireless telecom company, capital market regulator SEBI announced a proposal to alter the takeover regulations. The watchdog said that anyone holding GDRs or ADRs with voting rights of 15% must offer to buy 20% from minority holders. In an "informal guidance" in June, SEBI had said that holders of ADRs or GDRs may not have to offer to buy an additional 20% from minority shareholders unless these instruments are converted into ordinary shares.

In tune with market developments, the Board decided to amend the Takeover Regulations to provide that where the ADR/ GDR holders are entitled to exercise voting rights on the shares underlying GDRs /ADRs by virtue of clauses in the depositary agreement or otherwise, open offer obligations shall be triggered upon crossing the threshold limits, SEBI said in a statement. "If you are holding an ADR or GDR with voting rights, you have to make an open offer," said SEBI Chairman C.B. Bhave.

Bharti's proposed takeover of MTN involves issuance of GDRs to the South African telecom firm and its shareholders, which would add up to 36% of the Indian company. But, Bharti said it would seek exemption for MTN from making an offer. In a statement, India’s largest mobile phone firm said that the deal structure with MTN would be fully compliant with laws in both countries. "All relevant approvals, including exemption from open offer from SEBI if required, would be sought at an appropriate time," it said.

Bharti has extended the negotiation deadline twice to buy a 49% stake in MTN, offered a slew of concessions recently to seal a US$23bn deal that would have 200 million customers. The deadline to conclude a deal is September 30.

The Finance Ministry formed a four-member committee to meet South African officials who are visiting India this week to discuss the Bharti-MTN deal. Finance Minister Pranab Mukherjee said that the Indian Government backs the proposed merger of Bharti with MTN, but would require full convertibility of the Indian currency and the resolution of legal issues. India does not have full convertibility on the capital account.

South African officials told Indian policymakers that the latest change in takeover rules would make it difficult for MTN to complete its merger with Bharti. South African officials, who met SEBI, RBI and Finance Ministry officials in Mumbai, sought exemption from a clause that mandates the purchase of a 20% stake from minority holders if an entity’s stake in a company touches 15%.