South African firm MTN need not make an open offer to Bharti Airtel shareholders in India as its shareholding in the Sunil Mittal promoted firm would be through Global Depository Receipts, says market regulator SEBI.
SEBI said the open offer will only trigger once the GDRs, issued to MTN and its shareholders by Bharti Airtel, are converted into local shares with voting rights.
The proposed $23 billion transaction between the largest mobile phone operator in India and the African firm involves a complex structure, according to which both entities would pay cash and equity for stakes in each other.
The formula, if it works out, will result in Bharti Airtel getting a 49 per cent stake in MTN and the South African telco a 36 per cent 'economic interest' in Bharti Airtel.
Both the firms are in exclusive talks to create a $23 billion merger in a cash and stock transaction.
The deal involves issuing GDRs by Bharti to MTN and its shareholders for a 49 per cent stake which, if exchanged for underlying shares, would form about 25 per cent of Bharti's share capital.
MTN shareholders would receive GDRs representing 11 per cent of Bharti Airtel's share capital.
The market regulator, in a notification on Tuesday, said MTN would only need to make an open offer when the GDRs issued by Bharti for the takeover are converted into equity shares with voting rights.
For now, Sebi has given an exemption, saying the proposed deal structure does not require an open offer since MTN's shareholding in Bharti will only be through GDRs.
'MTN and/or its shareholders would be required to comply with the requirements of Chapter III of the Substantial Acquisition and Takeover Regulations (make an open offer) only upon conversion of the GDRs into equity shares with voting rights,' the regulator said.
Bharti Airtel had approached market regulator to grant an exemption to the South African firm from making an open offer in India following the deal.
Sebi, however, did not exempt the company from making the disclosures under the Sebi Regulations; MTN will have to comply with the requirements contained therein.
The current takeover regulations call for an open offer for 20 per cent of a company's shares if a new entity is buying 15 per cent of the company's shares.
As per Bharti's earlier disclosures, Bharti Airtel's equity expansion will only be in the form of GDRs that will be listed on the Johannesburg Stock Exchange, meaning MTN's entire 36 per cent holding -- 25 per cent direct stake through MTN and the rest through its shareholders -- will be in the form of GDRs.
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