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World Bank ban on Wipro, Megasoft too

World Bank ban on Wipro, Megasoft too
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First Published: Tue, Jan 13 2009. 12 41 AM IST

Tech trouble: Wipro’s Premji has said the firm was right from a legal as well as ethical standpoint. Hemant Mishra / Mint
Tech trouble: Wipro’s Premji has said the firm was right from a legal as well as ethical standpoint. Hemant Mishra / Mint
Updated: Tue, Jan 13 2009. 12 41 AM IST
Bangalore/Hyderabad: The World Bank on Monday disclosed that apart from Satyam Computer Services Ltd, it had barred Wipro Ltd and Megasoft Ltd from doing any work for it for “providing improper benefits to bank staff” in the first instance, and “participating in a joint venture with bank staff while also conducting business with the bank” in the second.
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“Satyam’s senior executives were openly denying reports of World Bank debarring the firm from doing any work for the bank. That forced the bank to make a public announcement and set the record straight. Following that incident, the bank took a policy decision, in the interest of fairness and transparency, to disclose the names of all affected vendors, who have been barred through our corporate procurement programme,” said Carl Hanlon, the bank’s Washington, DC-based spokesperson.
Last week, Satyam’s former chairman B. Ramalinga Raju confessed to fudging the company’s books to the tune of Rs7,136 crore.
Wipro’s co-chief executive Girish Paranjpe said the alleged “improper benefits” were not any form of illegal inducement and were in keeping with US law.
“When Wipro listed its ADR (American depository receipt) on the NYSE in 2000, we allotted shares to several people including (some employees) of prospective clients as advised by our managers to the issues Morgan Stanley and Credit Suisse,” Paranjpe said. “This was not barred under the SEC (Securities and Exchange Commission, the US stock market regulator) regulations and this is standard practice in the US.”
Executives at SEC couldn’t immediately be reached for comment.
Mint couldn’t immediately ascertain whether Wipro’s allotment was in keeping with the World Bank’s policy in 2000 and whether this had subsequently been changed.
While analysts said Wipro was above board, they questioned the logic behind the company’s decision to not disclose the World Bank’s action that dated back to June 2007. Wipro has been barred by the bank till 2011 and Megasoft till December 2011.
Tech trouble: Wipro’s Premji has said the firm was right from a legal as well as ethical standpoint. Hemant Mishra / Mint
“We continue to believe that Wipro is one of the best corporates in India in terms of corporate governance. However, such disclosures increase apprehension amongst investors in the backdrop of the Satyam fraud—this is evident in 10% price decline in Wipro’s stock today (Monday). We believe that it would be in the best interest of Indian IT companies to be prompt in disclosing price sensitive information to investors given nervousness post the Satyam debacle,” said JPMorgan Asia Pacific Equity Research in a note to its clients.
Still, the announcement was enough to push Wipro shares down sharply to Rs227.35 each at end of Monday’s trading, a fall of 9.3%. The Bombay Stock Exchange’s benchmark Sensex index closed down 3.15% and the BSE Teck index down 3.09%.
In a late evening mail to employees, Wipro chairman Azim Premji said: “Let me reaffirm that Wipro was right from a legal as well as ethical standpoint. We believe what we did was right and we did it in the right manner.”
However, Wipro doesn’t plan to contest the World Bank’s bar legally.
Wipro said that less than 2% of its ADRs had been allocated to employees of prospective clients and added that the World Bank business accounts for less than $1 million in revenue. The company ended 2007-08 with Rs19,957 crore in revenue and Rs3,283 crore in profit. In the first six months of this year, it earned a profit of Rs1,885.8 crore on revenue of Rs12,474 crore.
Paranjpe refused to disclose the names of the three World Bank employees issued shares, and didn’t announce the disbarment to Indian exchanges till Monday, after the bank’s announcement.
“I am surprised at the timing of the statement by World Bank. This is a more than a eight year old story,” Paranjpe said.
Meanwhile, G.V. Kumar, managing director and chief executive of Megasoft, said that the reason for bar was due to an apparent conflict of interest as a World Bank ex-employee was part of a joint venture in China started by the company, in 2003, while still being a service provider to the bank.
“In 2003, we set up Megasoft China operations with an ex-World Bank employee—Pen Hu, who was also on the Megasoft board till 2006. Hu left the World Bank in 2001,” said Kumar, who has been with the company since 2004.
“He did not attend (the) majority of the board meetings, I would have met him maybe twice.”
“We started the venture and we were not successful. In 2006, we shut it down as we were defocusing from the staffing business. We had a loss of $100,000—it is not materially big for us,” he added.
According to Kumar, the bank approached the company in 2007 asking for details of the joint venture. Kumar said Megasoft, which is listed on BSE, didn’t inform the exchange about the bar because it didn’t mean a “material” impact. Shares of Megasoft closed down 0.6% at Rs15.75 each. The company ended 2007-08 with Rs297.17crore in revenue and Rs56.01crore in net profit.
Kumar added that Megasoft hasn’t done any work for the bank since 2004. Interestingly, between 1994 and 1998, Megasoft managed, on an outsourced basis, the US software services division for Satyam.
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First Published: Tue, Jan 13 2009. 12 41 AM IST