The Bharti-MTN swap deal will be a test case for the relaxation in foreign investment norms brought in by Press Notes 2,3 and 4 of 2009. The voices from the government in favour of the deal mean that objections from the Reserve Bank of India over dilution of sectoral caps have been papered over.
Department of industrial policy and promotion (DIPP) officials told FE the deal would not face any any more regulatory hurdle if the new structure were compliant with the recent Press Notes, even though the RBI is yet to notify new rules on foreign investment. ?The final clearance will depend on the structure and valuations. But if they comply with the Press Notes issued in 2009, there should not be any problem,? a ministry official said.
The cash and share-swap transaction proposed by India ?s Bharti Airtel Ltd and South Africa ?s MTN Ltd envisages relaxation allowing the South African telecom major to pick up 36% stake in Bharti without breaching the 74% FDI cap in telecom sector. RBI and finance ministry have earlier asked for a review of the new FDI norms, arguing that these would lead to backdoor opening up of various sectors and breaching of FDI ceilings on certain restricted sectors including telecom.
?It (for FDI norms to acquire legal sanctity) will require Fema (Foreign Exchange Management Act) notification. Press release is just a communication. The notification has to be issued by the government of India. RBI may help in framing that notification. RBI is only the operational and implementation arm of the FEMA,? a source said.
The RBI guidelines will apply on pricing, inflow and outflow of capital, while a clearance for Foreign Investment Promotion Board would be needed on any downstream investment, the official said. International share-swap deals under the Indian laws are not permitted under the automatic route and therefore companies will have to approach the RBI in any case, officials and consultants said.
In its objections to the new norms, while RBI had made specific interjections related to the banking and insurance sectors, it also said the new foreign investment norms affected sectors including financial services, real estate and infrastructure. RBI said the new norm would render many Indian banks as foreign owned and Indian controlled. This in turn would affect these banks?, notably ICICI Bank and HDFC, downstream investment in their insurance ventures.
Bharti currently has about 43% foreign investment in the company, which would jump close to 70% post transaction, said SMC Capital equity head Jagannadham Thunuguntla. The stake of Singapore Telecommunications Ltd or SingTel, which currently holds a 30% stake in Bharti Airtel, may dilute to about 19.4%, if the deal goes through, Citigroup said in a report.
