Sebi exempts MTN from open offer to Bharti shareholders

The proposed alliance between Bharti Airtel, India’s largest telecom company, and South African telecom giant MTN crossed the first hurdle after the Securities and Exchange Board of India (Sebi) exempted MTN from making the mandatory open offer to Bharti Airtel shareholders under the takeover code.

The takeover code requires a buyer to make an offer to buy 20 per cent of the shares of a listed target company if it acquires more than 15 per cent of the shareholding. A Sebi order on Tuesday said MTN was exempt from this requirement because it intended to acquire 25 per cent in Bharti Airtel through global depository receipts (GDRs).

The regulator, however, said the open offer would be triggerred only once the GDRs are converted into local shares with voting rights.

The transaction between the Indian and South African firm involves a complex structure, under which both entities will pay cash and equity for stakes in each other in a $23-billion merger. If the deal materialises, it will be the largest M&A in India to date.

Under the two-way transaction, Bharti Airtel will acquire 49 per cent in MTN. In addition, to the 25 per cent GDR-routed 25 per cent stake in Bharti Airtel, MTN shareholders will buy another 11 per cent stake in the Indian company.

Bharti Airtel’s equity expansion will only be in the form of GDRs that will be listed on the Johannesburg Stock Exchange, which means MTN’s 36 per cent holding — 25 per cent direct stake through MTN and the rest through its shareholders — will be in the form of GDRs.

Bharti Airtel had approached the market regulator to grant the South African firm an exemption from making an open offer in India following the deal.

Sebi, however, did not exempt the company from making disclosures under the Sebi Regulations, saying MTN would have to comply with those requirements.