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BW Businessworld

Dangerous Exemption

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36 per cent in Bharti without an open offer

The securities and Exchange Board of India (Sebi) has opened a Pandora’s box with its decision to grant an exemption to South Africa’s MTN from making an open offer to Bharti Airtel’s Indian shareholders as and when its complex cross-border deal with Bharti fructifies.
The deal entails MTN acquiring a 36 per cent stake in Bharti Airtel, while Bharti will hold 49 per cent of MTN. Indian takeover regulations require anybody acquiring 15 per cent or more shares of a listed Indian company to make an open offer to the public for another 20 per cent.
Sebi granted the exemption saying the deal is being transacted through global depository receipts (GDRs), rather than shares held in India. Every GDR is backed by Indian shares and can be converted into Indian shares — and vice-versa — but is not technically shares held in India. “Sebi has only reiterated what is technically correct,” says Shardul Shroff, managing partner of law firm Amarchand Mangaldas.
Investors fear the exemption sets a dangerous precedent of future cross-border acquisitions via GDRs to skirt the open offer clause. “This would effectively sidestep all takeover regulations,” says Virendra Jain, president of Midas Touch Investors Association.
However, some see nothing amiss. “Intelligent bankers come up with intelligent structures. What’s wrong with that?” says Akil Hirani, managing partner of Majmudar & Co.
But as Sanjay Bansal, partner at Ambit Corporate Finance, says, this may just be a situation for which no regulation exists.
It may be time to plug the loophole before it is too late.

Up Or Down?
Is there an organised attempt to talk up the lacklustre market?

REALITY: Contrary to reports, realty prices
have not stabilised (Pic by Satheesh Nair)

There are contradictory signals from the realty market. Edelweiss Research has released a survey showing a rise in the residential property prices on the back of buoyant consumer sentiment after the Lok Sabha polls. The survey also said another round of price hikes was expected in the Mumbai and Delhi-National Capital Region markets around budget time. The survey shows 72 of the brokers expected prices to stabilise over the next three months.
On the other hand, the findings of Crisil Research, released a few days earlier, predict that though home-buying had increased, residential prices would continue to slide another 10 per cent by October this year.
Numerous unsubstantiated reports in the media of property prices rising leads more discerning readers to suspect that there is an organised attempt by builders to prime up a lacklustre market.
The credibility of some is also questionable. For instance, the Edelweiss findings are based on interviews with just 100 brokers spread over four cities.
The truth is that consumers are still in a wait-and-watch mode and the only prices that have stabilised are those of city-centric residential projects that are nearing completion.
Gurbir Singh


The Commonwealth Games will have its equivalent to the Olympic torch. Bharat Electronics has developed the Queen’s Baton, a 75-cm long wand costing Rs 1 crore. Its lights are programmed to light up into the flag of the country the baton passes through.

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A Question Of Standards
Indian contract manufacturer MJ Biopharm has been hauled up by UK’s Medicines and Healthcare products Regulatory Agency (MHRA) for deficiencies in good manufacturing practices at its factory in Taloja, Maharashtra. This has resulted in the recall of a number of generics by MJ’s customers including Novartis, Jubilant and Wockhardt. The drugs include products such as metformin, the gold standard in diabetes treatment, and amlodipine, a blood pressure pill.

Novartis and Jubilant reportedly said the withdrawn products generated “insignificant” turnover. MJ did not respond to BW’s email questionnaire.

The MJ Pharma episode is bound to add to the rising concern in western markets about Indian pharma companies. It also raises questions on the adequacy of oversight by drug companies over their contractors and will likely provide ammunition for anti-drug-outsourcing lobbies.
Gauri Kamath

(Businessworld Issue Dated 13-20 July 2009)

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