South Africa declared support for a proposed tie-up between domestic telecoms operator MTN and India's Bharti Airtel on Tuesday, making the complex cash-and-shares deal more likely to succeed.

The South African government said it backed the $23 billion cross-ownership deal that could eventually lead to the creation of the world's third-biggest mobile operator, and which MTN and Bharti have been negotiating since May.

It appears to be a good proposal, especially given it (is) ... within the framework of south-south cooperation, a government spokesman said, referring to a trilateral economic development initiative between South Africa, India and Brazil.

If all the prerequisites of mergers and acquisitions ... are met, I don't see why anybody will want to stand in the way of what will benefit the people of the two countries.

Although there is no regulatory need for government approval because it is not a full merger, analysts have said Pretoria's backing is crucial if the transaction is to go ahead.

MTN's biggest shareholder, with 21 percent, is the Public Investment Corporation, a state pension fund owned by the government.


The government's positive tone reflects the strategic importance of India as a trading partner for new President Jacob Zuma and his government elected in April, whom foreign investors have been watching for any signs the economy is moving to the left.

It also contrasts with the government's attitude towards mining firm Xstrata's proposed takeover of South African rival Anglo American.

Although the government has not got directly involved in the Xstrata-Anglo affair, ministers and trade unions have expressed concerns about job losses in the mining industry in connection with Xstrata's move.

A combined Bharti-MTN would be the world's third-biggest mobile operator by subscribers after China Mobile and Vodafone. But its annual sales of $20 billion would be dwarfed by China Mobile's $60 billion and Vodafone's $65 billion.

MTN, the country's second-biggest mobile operator and the only one that is still owned by South Africans, was set up with government help in 1994 when apartheid ended as the country's first black-owned group.

The South African government will ensure that the family silver (MTN) is not sold for a pittance, said an analyst who declined to be named for compliance reasons.

Under the proposal, an initial cash-and-shares tie-up would see MTN take a 36 percent stake in Bharti and Bharti 49 percent of MTN, with the possibility of a full-blown merger to follow.

The transaction has been delayed by differences over valuations and management rights, with Bharti under pressure to sweeten its part of the deal.

South Africa's top carrier Vodacom Group was sold to Britain's Vodafone and was listed on the Johannesburg bourse in May.

That deal narrowly escaped being blocked by powerful trade union COSATU, which feared job losses. COSATU reiterated this week it was unlikely to block a possible transaction between MTN and Bharti.

Cell C, South Africa's third-largest wireless firm, is majority owned by Saudi Arabian construction company Saudi Oger.

One source with knowledge of the deal told Reuters that India's government, as well as South Africa's, was taking a close interest in the MTN/Bharti talks, which were revived after breaking off a year ago and have since been extended twice.

Is certainly true that both governments are deeply involved in this transaction, the person said. I think government is involved in all levels .. Neither side will consider moving forward without strong support from both governments.

MTN's Chief Executive Phuthuma Nhleko and Bharti's Chairman Sunil Mittal met the Indian finance minister and corporate affairs minister last week.

MTN shares were barely changed at 127.75 rand by 1414 GMT, in line with a flat JSE blue chip Top-40 index .JTOPI. Shares in Bharti slipped 0.7 percent, in line with the Mumbai market.

(Additional reporting by Georgina Prodhan, Devidutta Tripathy, Narayanan Somasundaram; editing by John Stonestreet)