The shelved $23-billion mega deal between Bharti Airtel and South Africa's MTN would have been the biggest ever M&A transaction by any Indian company. The South African government insisted on dual listing of the companies which came as the stumbling block to the deal.
The dual listing of the stock means that Bharti will be listed in the BSE/NSE as well as the Johannesberg Stock Exchange and for this the government has to make changes in the existing Companies Act, Foreign Exchange Management Act (FEMA) and allow Capital Account Convertibility (CAC) of Indian currency.
Indian government has been mulling over the idea of CAC of the currency from the time the Reserve Bank set up Tarapore Committee to make recommendation for the same in 1997. In 2006, the committee had submitted the recommendation with perquisites that have to be satisfied before implementation of the CAC.
The government is in a dilemma due to the following reasons:
Indian authorities would not be able to monitor sectoral caps on direct and indirect investment that are imposed on 13 industry sectors, including telecom.
Entities that are ineligible for investing in Indian companies could have acquired a stake through transactions carried out on the overseas exchange, in violation of the Foreign Exchange Management Act (Fema).
Allowing dual listing would also have weakened the Securities and Exchange Board of India’s oversight of the stock market, led to trading activity being taken away from stock exchanges in India and a likely revenue loss for the Indian exchequer.
The fear of something similar to East Asian Crisis in late nineties which every one feels that was aggravated due to the CAC policy of those countries.
In the current scenario where the Indian companies are scouting for big M&A’s, the CAC looks like an inevitable one.
What are innovative ideas that will help the government implement CAC and safe guard the interest of the nation.
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