The good news for Africa's No. 2 cell-phone operator MTN Group Ltd. may ultimately turn sour for investor J.P. Morgan Chase & Co. (NYSE:JPM). According to The Economic Times, J.P. Morgan is one of a handful of banks providing
$500 million apiece to finance No. 1 Indian cell-phone company Bharti Airtel Ltd.'s $20 billion merger with MTN.
A year ago, Bharti-MTN talks fell apart due to a disagreement over
the structure of the deal. At that time, MTN was much smaller. However, in May, as we previously reported, MTN passed the 100 million subscriber mark, and according to a Reuters report, much of the growth is from customers in Iran, Sudan and Syria.
So what's the danger to J.P. Morgan? As
the report notes, investments in those countries are limited by the U.S. Treasury's Office of Foreign Assets Control, or OFAC, which sets tough restrictions on direct and indirect investments in countries facing U.S. sanctions. If revenue generated from Iran, Sudan and Syria tops 25%, J.P. Morgan's stake in the merged Bharti-MTN could get the attention of OFAC.
The power of OFAC to influence a deal has been proved. Reuters quotes an investment banker who said his firm steered clear of Sinopec's $7.2 billion deal to buy oil explorer Addax Petroleum, in part because of Addax's oil fields in Iraq's Kurdistan region.
OFAC isn't the only agency that could weigh in on the proposed merger. India's Business Standard is reporting that the country's Department of Economic Affairs is
reviewing the deal because of the level of foreign investment needed to fund the merger. -
Baz Hiralal See the Reuters report
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