Bharti, MTN get market talking

By Nicola Mawson, Contributing journalist

Johannesburg, 24 Jul 2009

Speculation around the MTN and Bharti Airtel merger is ramping up as the exclusivity period draws to a close.

India`s Economic Times reports that Bharti Airtel will dip into its cash reserves and short-term investments to fund the pending merger with MTN.

The paper, quoting a company executive, says this will give it access to about a third of about $3.9 billion it will need to acquire a 49% stake in Africa`s largest cellular operator.

Bharti and MTN have agreed to talk exclusively with each other, until month-end, about the proposed merger, which will see MTN and its shareholders get a 36% stake in the Indian cellular company.

Talks continue

The Economic Times quotes deputy CE and MD of Bharti Enterprises, Bharti Airtel`s holding company, Akhil Gupta, as saying: "All I can say is that talks are progressing well between Bharti Enterprises and MTN."

Recently, reports emerged that MTN is in talks with a group of lenders to secure a $3.5 billion loan to back the merger. The Indian operator is also reported to be talking to banks about a loan of between $5 billion and $6.5 billion to back the merger.

Reuters reports that officials from MTN are meeting India`s capital market watchdog and stock exchanges to understand regulatory issues on the proposed deal, citing India`s Economic Times.

The wire service quotes the paper as saying that a three-member team from MTN was likely to seek clarity on what rights MTN and its shareholders would get for holding 36% in Bharti.

Bloomberg has reported that the rand is now at its strongest level in 11 months against the dollar. The wire service says this is as a result of speculation that the deal will go ahead, pumping R60 billion into SA`s economy.

Analysts at Commerzbank, Rand Merchant Bank, Standard Bank Group and Macquarie First-South Securities say that speculation that the deal may go ahead boosted the rand, reports Bloomberg.

Speculation

Irnest Kaplan, MD of Kaplan Equity Analysts, says it is expected that reports around the merger would start coming out as the exclusivity period draws to a close.

However, Kaplan believes the strength of the rand cannot only be attributed to the proposed deal. While some of the strength can be attributed to the market buying up the currency in anticipation of foreign inflows, this is not the only factor that needs to be considered.

Kaplan points out that the rand is the highest traded emerging market currency, and - as a result - is very volatile. Other factors, such as the recent appointment of Gill Marcus as governor of the Reserve Bank, will have shifted the currency.

The complicated deal requires more explanation, says Kaplan. It is likely that talks will continue beyond the end of the exclusivity period, he adds.