Talks between India’s top mobile firm Bharti and South Africa’s flagship cellular group MTN may have to be extended due to new hurdles in their bid to create a telecoms giant, analysts say.<\/p>\n
But a deal could still emerge despite regulatory obstacles that have cropped up in the complex $24bn share-swap negotiations, they said.<\/p>\n
The latest deadline set by Bharti Airtel, owned by tycoon Sunil Bharti Mittal, and MTN to wrap up exclusive talks to create the world’s third-largest mobile phone operator by subscribers expires on Wednesday.<\/p>\n
Many analysts believe the companies will announce a third extension of the talks, which began in May aimed at forging a telecom powerhouse with annual revenues of over $20bn and 200 million customers.<\/p>\n
“The two parties may come out with preliminary details, which may be possible before the end of the month, but there’s no way a deal can be concluded,” said investment analyst Rajay Ambekar of Prudential South Africa.<\/p>\n
“We’ll most likely see another extension,” Ambekar told AFP.<\/p>\n
Under the initial plan announced in May, Bharti would be the biggest single stakeholder in the alliance, taking a 49% stake in MTN using cash and Global Depository Receipts (GDRs).<\/p>\n
Shareholders of MTN would have a 36% interest in Bharti through cash and stock.<\/p>\n
“The two bodies are principally okay with the structure that they have been talking about,” said Gartner telecoms analyst Madhusudan Gupta.<\/p>\n
But demands earlier this month by the South African government for a dual stock exchange listing to preserve MTN’s South African identity have created a last-minute hitch.<\/p>\n
A dual-listed company involves two listed companies which have different sets of shareholders but share ownership of a single business. South Africa allows dual listing while India does not.<\/p>\n
The South African government, which indirectly holds over 21% in MTN, said it was unwilling to sacrifice the firm’s “South African character” and raised the idea of dual listing as a compromise.<\/p>\n
But allowing dual-listed companies would involve major changes in India’s foreign exchange and stock market laws – something the government says cannot be done immediately and not to facilitate one corporate deal.<\/p>\n
Then, in another complication, India’s stock market regulator last week tightened takeover rules.<\/p>\n
It said regulations on triggering an open offer now would apply to bidders acquiring Global Depositary Receipts with voting rights in an Indian company.<\/p>\n
MTN might then need to make a mandatory offer for another 20% of Bharti on top of the original 36% it planned to acquire, analysts say.<\/p>\n
That would make the deal more expensive for MTN and push the foreign investment in Bharti over the 74% limit stipulated by Indian law as there are other foreign investors which hold Bharti shares.<\/p>\n
The regulatory aspects “look to be a challenge” but “I don’t think the talks will fail on these grounds,” said Gartner’s Gupta.<\/p>\n
“I think they might just have to extend the talks.”<\/p>\n
In one positive sign, Indian Premier Manmohan Singh met South African President Jacob Zuma on the sidelines of the G-20 summit of rich and emerging nations in Pittsburgh last week to say he supported the deal.<\/p>\n
He said in comments aired on Indian TV on Saturday that he told Zuma he “sincerely hoped this deal would go through.”<\/p>\n
“It has been agreed this matter can be further discussed with the government of South Africa,” he added.<\/p>\n
In another positive signal, Indian TV station CNBC-TV18 quoted unnamed South African government officials as saying they were positive on the deal for the “growth of MTN and Bharti.”<\/p>\n
Still, analysts say even if a deal is reached, MTN shareholders may not be happy over the price offered.<\/p>\n
“Views are in South Africa that MTN has a unique footprint in Africa and the Middle East and the price needs to be higher,” said a London-based analyst who did not wish to be named.<\/p>\n
An agreement would need approval from 75% of MTN’s shareholders – some of whom have persistently said Bharti should sweeten its offer.<\/p>\n