Advantages And Disadvantages Of The Dual Listing Structure Finance Essay

This paper is an effort to analyse the most of import issue ( double listing ) for the death of the multibillion dollar dream of Bharti Airtel and MTN, which was non merely legal, regulative and commercial but besides political. An in deepness survey has been made to explicate double listing of companies and besides why India can non follow the government as of today. An effort has been made to explicate how absence of full convertibility of Indian rupees has acted as a barrier and prevented the said trade. Focus has besides been laid on the legal model, construction and amendments needed in assorted Torahs to let double listing among Indian and other corporate. This paper has been concluded by pulling a balance of advantages and disadvantages of the double listing construction.


May, 2008, Bharti announced that it had started explorative treatments with MTN, and an in-principle understanding was later reached and a term sheet was executed. However, the footings and conditions set in this amalgamation proposal by Bharati were non accepted by MTN which subsequently proposed a new construction imagining Bharati as a subordinate of MTN and any hopes for a trade saw its destiny. However, a new proposal was offered in May 2009 precisely a twelvemonth subsequently, and as per the exploring understanding, MTN and its stockholders would get around 36 per cent economic involvement in Bharti Airtel, while, Bharti Airtel would get 49 per cent interest in the South African telecom Giant MTN, but the said trade besides fell through after tough dialogues enduring good over four months.

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The Telecom Giants- A brief debut


Launched in 1994, MTN Group is a transnational telecommunications supplier, with its nucleus operations in 21 states in Africa and the Middle East.[ 2 ]MTN Group Limited ( the “ Group ” ) carries on the concern of puting in the telecommunications industry through its subordinate companies, joint ventures and associate companies.[ 3 ]In most of the states in which the Group has a presence it has maintained and improved its market portion with an approximate market portion of 40 to 50 % in each of the states.[ 4 ]

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Bharti Airtel

Once known as Bharti Tele-Ventures LTD ( BTVL ) is the largest cellular service supplier in India. Airtel comes to you from Bharti Airtel Limited, one of Asia ‘s taking integrated telecom services suppliers with operations in India, Sri Lanka and Bangladesh. Bharti Airtel offers GSM Mobile services in all the 23-telecom circles of India and is the largest nomadic service supplier in the state, based on the figure of clients.[ 5 ]The Company provides telephone services in top 95 metropoliss in India.

The Deal as was Envisaged

a-? MTN would get about a 25 % post-transaction economic involvement in Bharti for an effectual consideration of about USD 2.9 billion in hard currency and freshly issued portions of MTN equal to about 25 % of the presently issued portion capital of MTN.

a-? Bharti would get about 36 % of the presently issued portion capital of MTN from MTN stockholders for a consideration of ZAR 86.00 in hard currency and 0.5 freshly issued Bharti portions in the signifier of Global Depository Receipts ( GDR ‘s ) for every MTN portion acquired which, in combination with MTN portions issued in portion colony of MTN ‘s acquisition of about a 25 % post-transaction economic involvement in Bharti, would take Bharti ‘s interest to 49 % of the hypertrophied capital of MTN. Each GDR would be tantamount to one portion in Bharti and would be listed on the securities exchange operated by JSE Limited.

a-? Bharti would hold significant participatory and administration rights in MTN enabling it to to the full consolidate the histories of MTN

a-? MTN ‘s economic involvement in Bharti would be equity.[ 6 ]

Most Important facet or issue in the Deal: Double List

Double listing is a listing procedure by which a company would be allowed to be listed and traded on the stock exchanges of two states. In other words, it is a procedure that allows a company to be listed on the stock exchanges of two different states. The portions of the company, which enjoy voting rights, can be traded on both the Bourses. Where two companies in two different states enter into an equity confederation without an outright amalgamation, double listing implies continued listing of the companies in both the states. It facilitates the stockholders in purchasing and merchandising of portions of both companies on the Bourses in the two states.

Double listing may be a feasible method that can be used when two cross boundary line companies decide to make concern together, with or without a amalgamation / acquisition.

In an archetypical acquisition or amalgamation, the meeting companies become a individual legal entity, with one concern purchasing the other. On the other manus, “ a dual-listed company or DLC is a corporate construction where two corporations function as a individual operating concern through a legal equalisation understanding, but retain separate legal individualities and stock exchange listings. Ideally all DLCs are cross-border, and have revenue enhancement advantages for the corporations and their shareholders. ”[ 7 ]

The South African authorities had demanded double listing of MTN in order to protect the character of MTN as a South African entity. India could non hold accepted the demand of the South African authorities for double listing of portions in the absence of full convertibility of rupee. “ As the Indian rupee is non to the full exchangeable, it is non possible to travel in for double listing of portions which allows people to purchase portions in the stock exchanges of one state and sell in the Bourses of the other state. ”

What is meant by full convertibility of rupees?

Indian currency is non to the full exchangeable, i.e. absence of full capital history convertibility ( CAC ) . CAC implies the abolishment of restrictions in the flow of capital from India to different states. In other words, it means that irrespective of whether 1 is a occupant or non-resident of India 1 ‘s assets and liabilities can be freely ( i.e. without permission of any regulative authorization ) denominated ( or cashed ) in any currency and easy interchanged between that currency and the Rupee. At present, the rupee is exchangeable on the current history, but capital history minutess are still capable to ordinances.[ 8 ]

What are the concerns attached to CAC?

CAC is widely regarded as one of the trademarks of a developed economic system. In an effort to pull foreign investing, many developing states went in for CAC in the 1980s and failed to recognize that free mobility of capital foliages states open to both sudden and immense influxs every bit good as escapes, either of which can be potentially destabilizing. More significantly, that unless there are establishments, peculiarly fiscal establishments, capable of covering with such immense flows, states may non be able to get by as was demonstrated by the East Asiatic crisis of the late 1890ss. Post the East Asiatic crisis, even the most ardent votaries of CAC in the World Bank and the IMF realised that the dangers of traveling in for CAC without equal readying could be ruinous. Since so the corporate wisdom has been to travel easy but carefully towards CAC with precedence being accorded to financial consolidation and fiscal sector reform above all else.

Why India could n’t accept the DLC Structure?

To efficaciously implement the DLC construction, the Companies Act, 1956 would necessitate important alterations to ease accounting revelations, prospectus revelations, fiscal formats, common board and common stockholder meetings every bit good as specifying the deductions of disintegration of one of the DLCs. Securities Torahs would besides imply alterations to the listing demands and prospectus revelations and exchange control ordinances may necessitate to be amended vis a vis trading of double listed stock. A DLC can non go a world in India without integrating the above mentioned amendments into our legal system.

The most cardinal amendment for implementing DLC would be to allow full CAC under the Foreign Exchange Management Act, 1999 ( “ FEMA ” ) . As of today, FEMA does non allow CAC for occupants and this proved to be the existent trade ledgeman for Bharti Airtel – MTN.

In India, a three twelvemonth route map was laid down by the Tarapore commission stoping 1999 2000 for CAC.[ 9 ]It is apparent that India has been slow in accomplishing CAC but the regulators claim that it has been steady. Indian regulators including the Reserve Bank of India ( “ RBI ” ) do non desire to perpetrate any error by hotfooting into CAC. In the visible radiation of the Proposed Transaction, the Indian regulators have a common consensus that such a major fiscal determination with far making effects will be taken merely after due scrutiny of the virtues of the strategy and whether India has the capableness to implement it.

When RBI Deputy Governor K C Chakrabarty was asked whether Bharti-MTN trade failure would accelerate the procedure of complete convertibility, he replied, “ Nothing will accelerate the capital history convertibility ” .[ 10 ]Harmonizing to evaluation bureau CRISIL ‘s chief economic expert, ‘proper hazard direction demands to be in topographic point for full capital history convertibility… all of a sudden holding full convertibility does non do sense amid the planetary crisis ‘ .[ 11 ]


In instance double listing is allowed, an Indian company ‘s portions can be sold on a foreign Stock Exchange and vice-versa, go forthing apart the trading of private investors in foreign markets straight. Though some jobs, for illustration, the portions may merchandise at a price reduction in one market and/or the portions may be less liquid in one market can non be ruled out.

Double listing may doubtless present challenges in footings of alteration in jurisprudence and mentality, and necessitating more revelation and conformity. However, the benefits of double listing, like enhanced entree to multiple capital markets, tax-efficient constructions, a higher regulative criterion and better administration are difficult to disregard.

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