Bharti Airtel-MTN deal risks FIPB hurdles

27 May 2009

Sunil Mittal's adventurous second round run with South Africa's MTN to outsmart Reliance Communications may still have to face some regulatory hurdles, say analysts familiar with the situation.

 The Reliance-MTN merger proposal last year went down the drain due to dispute on ownership of the combined entity and political sensitivities in each country. It is also said that the deal flopped as the US regulators were against it because of MTN's growing presence in Iran, and MTN needed money from US banks to complete the deal.

A merger of MTN, with a current market cap of $27 billion, and Bharti, valued at $34 billion, would create one of the top 10 global telecom players. (See: Bharti, MTN revive merger talks).

According to analysts, the $23-billion cash-and-share deal will need the approval of India's foreign investment promotion board (FIPB), which still lacks a clear policy on share swaps. The deal also needs green signal from the Reserve Bank of India (RBI).

The current foreign direct investment (FDI) policy allows cashless issue of shares through instruments such as warrants after FIPB approval.

The Press Notes 2 and 3 issued on 13 February 2009 outline the revised FDI guidelines announced by the cabinet committee on economic affairs. It simplified the method for calculating FDI and broadly stated that as long as Indian promoters hold a majority stake (that is, more than 51 per cent) in an operating-cum-investment company, they can bring in investments up to 49.9 per cent through FDI. (See: New FDI norms baffle analysts).