25 September 2009

Dual listing – FM should be better briefed

Day before, the Finance Minister said dual listing cannot be allowed because of exchange control restrictions. He is clearly not being properly advised. Also based on what I have read extensively in the newspapers, there seems to be a major mis-conception about what dual listing is. People are assuming dual listing would mean that MTN the South African company would be listed in India and that Bharti would be listed in South Africa. That is not how dual listing works – that example is one of quadruple listing.

Dual listing means that Bharti would continue to be listed in India and MTN would continue to be listed in South Africa. They would exchange cash flows to make the two companies economically single though legally distinct. They would also agree to exchange equalising cash flows on liquidation as also enable voting rights of one company to elect the other’s Board so that the Boards have identical people.

Given this, there is practically no issue of exchange control. You simply cannot buy MTN shares in South Africa and sell them in India – as MTN shares are not listed in India. Since both shares should have an identical value though in different currencies, any price differential would raise arbitrage opportunities. So if the Bharti shares are valued at above the price of the MTN shares, someone could sell Bharti stock in India short and buy MTN shares (long) in South Africa. To repeat, one cannot do a cross-border buy/sell transaction thus there is no exchange control restriction. The small arbitrage trades can easily be done under current laws – FIIs can buy and sell Bharti and MTN stocks in their respective countries and Indian shareholders too can do arbitrage under the $250,000 foreign exchange window given to each Indian (or 1 million dollars for a family of four).

Can someone advice the FM properly?

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