SEBI exempts MTN from making open offer to Bharti shareholders

The Securities and Exchange Board of India (SEBI) on Tuesday cleared the decks for the $23-billion merger of the largest mobile operators in India and Africa by exempting South African firm MTN from making an open offer for an additional 20% shares of Bharti Airtel.

The two telecom companies had approached the regulator for an exemption on the grounds that MTN���s proposed 36% holding in Bharti Airtel ���25% stake with the company and the rest with its shareholders ��� would be in the form of global depository receipts (GDRs) listed on the Johannesburg Stock Exchange. ET NOW had reported the development on July 3.

SEBI���s takeover regulations stipulate that an investor acquiring 15% or more stake in an Indian company must make an open offer for an additional 20% stake. But, SEBI has clarified that the structure of the Bharti-MTN deal does not require an open offer since the entire transaction will be through GDRs. It said the deal will trigger the open offer clause only when the GDRs are converted into local shares with voting rights.

The proposed transaction between the mobile phone operators involves a complex structure through which both entities would pay cash and equity to each other. The formula, if it works out, will result in Bharti Airtel getting a 49% stake in MTN and the South African firm a 36% ���economic interest��� in the Indian firm.

ET had first reported on June 15 that MTN���s proposed 36% stake in Bharti Airtel will be held in the form of GDRs. Bharti Airtel, in its communication to SEBI seeking the waiver, had informed the regulator that the transaction will be done through issuing GDRs to MTN and its shareholders.

���The transaction contemplates issuance of GDRs by Bharti Airtel (BAL) to MTN and its shareholders, whereby MTN would receive GDRs which, if exchanged for underlying shares of BAL, would constitute approximately 25% of the share capital of BAL,��� the market regulator said.

���MTN shareholders would receive GDRs with underlying shares approximating 11% of BAL���s share capital. The shares underlying the GDRs will be issued to the overseas depository bank and shall rank ���pari passu��� with the other issued shares of BAL,��� it said. A secondary issue of shares that carry equal rights with existing shares are said to rank ���pari passu���.

A corporate lawyer had told ET last week there were provisions in the takeover code under which companies could seek specific exemptions from an open offer. ���This exemption is given only if the market regulator is convinced that the public shareholders are not disadvantaged for lack of an open offer. This is the guiding principle SEBI will consider while granting such exemptions,��� he said.