FE Editorial : Two countries, one company

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: The proposed $23-billion merger between Bharti and MTN has now raised the issue of dual listing. The first point to recognise is that the South African government’s proposal for dual listing of the two companies is, at the least, partially a bargaining counter for MTN, which has a strong national identity in that country. The second point is that policy-wise, dual listing raises a lot of questions. It calls for a policy change on full capital account convertibility (CAC). CAC is a good thing. But this is not the reason for it. Dual listing also requires changes in the Foreign Exchange Management Act and domestic trading in shares denominated in foreign currency cannot take place without the permission of RBI. An amendment to the current regulations will also require an agreement among various regulatory agencies, like RBI, Sebi and finance and corporate affairs ministries. Currently, India allows only foreign firms to issue Indian Depository Receipts, while Indian companies can issue ADRs and GDRs. But these are consequential changes. The main issue is the optimality of dual listing. This involves merger between two companies in which they agree to combine their operations and cash flows, but retain separate shareholder registries and identities. Dual listing structures have a long history with Royal Dutch Petroleum and Shell way back in 1903 and Unilever in 1930. From 1980 to 2000, there were seven dual listing companies, but six of them were disbanded because of the lack of investor interest, as they failed to understand the complex structure. Investor interest in dual listings has also diminished over the years, as it has become easier and cheaper for them to trade in foreign markets.