• MAY 26, 2009

The disinvestment ministry is back

As per a leading business daily, the new government plans to revive the disinvestment ministry. It may be noted that the ministry was first formed under the NDA government but later converted into a department under the finance ministry when the UPA came to power in 2004. The main reason was the pressure from the left parties who were their major allies. This time around, there is no such pressure, although there might be opposition from the Trinamool Congress, an important ally.

The government is likely to sell stakes in around 40 public sector companies in order to address the fiscal deficit situation, which stands at 6% of the GDP. It is estimated that the government could raise more than Rs 500 bn from the process. The ministry is likely to be headed by a minister of a cabinet rank and Montek Singh Ahluwalia is said to be the front runner for the post.

Although the exact details will emerge in due course, it is heartening to note that there remains a common thread of reforms even when the government moves to a rival political formation. To that extent, we must celebrate the Indian democracy, which is the best bet for unleashing the human potential in our country.

Bharti dials MTN again
Bharti Airtel has announced that it is in talks with the South African telecom major MTN for a merger involving a cash and share swap. As reported in a leading business daily, the deal size is pegged at US$ 23 bn. While Bharti will acquire a 49% economic interest in MTN. MTN, along with its shareholders, in turn will acquire a 36% economic interest in Bharti in the form of global depository receipts (GDRs). These GDRs will be listed in the Johannesburg stock exchange.

It may be noted that Bharti had held talks with MTN a year ago but failed. Reliance Communications had also tried. The deal is now made possible due to the new relaxations in foreign direct investment rules involving a swap of shares. However, the RBI has opposed the new rules and there will be more clarity in a couple of weeks. Moreover, opinion is divided on whether Bharti will have to go for an open offer or not. An open offer is triggered on the acquisition of a 15% stake but it is not clear what happens if two companies acquire stakes in each other. The deadline for the merger has been fixed as the end of July.

The merger will create the 3rd larger telecom player in the world after China Mobile and Vodafone. It will cater to more than 200 m customers in 24 countries and generate revenues to the tune of US$ 20 bn. While the merged entity will seek to benefit from the economies of scale over the long term, the immediate worry for investors is the extent of dilution in shareholders' value due to changes in Bharti's capital structure.

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