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Mumbai: In what could further sully the image of an Indian IT sector still coming to grips with the Satyam fraud, the World Bank announced in Washington late on Sunday that it had barred Wipro Technologies from contracts under its corporate procurement programme until 2011. Two other companies were also barred: the beleaguered Satyam Computer Services and a relatively smaller company, Megasoft Consultants.
The Bank also intends to publicly list all companies that have been barred from its corporate procurement to ensure fairness and transparency, it said. The World Bank said it had imposed the ban from 2007 because Wipro offered shares during its US IPO in 2000 to Bank employees.
The BSE IT index fell by 3.80% on news of the Wipro ban. However, a statement by Wipro saying earnings from the World Bank were negligible and that the ban been issued in 2007 assuaged the woes of traders. A few IT stocks staged a recovery, but there was significant selling pressure, with Aptech and TCS falling by 5.34% and 4.46%, respectively. Wipro lost around 9.30% in Monday’s trades.
Stating that it had been consulted about the disclosure made by the World Bank under revised policies, Wipro justified the share offer to Bank staff, saying it was part of the US Securities & Exchange Commission (SEC)-approved directed share programme (DSP). The programme sought to involve employees and customers in the public offering, and the move was aimed at expanding Wipro’s recognition and brand, the company said.
“The aggregate number of shares purchased by (World Bank staff) was 1,750 for about $72,000 at the IPO price. All participants in the programme signed a conflict of interest statement that their purchase did not violate any ethics or conflict of interest policies of their company,” the Wipro statement added. Repeated attempts by FE to contact World Bank representatives failed to elicit a response.
Viral Thakker, director-IT advisory services, KPMG India, said it is difficult to ascertain how big the World Bank’s IT contracts were with the banned Indian companies. “These contracts are usually based on strong performance at operational levels and, therefore, it serves as a lesson to all companies that they need to be more clear about governance around the procurement process.”
Girish Paranjpe, joint CEO, Wipro Technologies, said Wipro did not disclose the ban earlier because it was a matter of disagreement between two private companies. “We had a detailed process with the World Bank on this issue and we completely disagree that we are guilty of doing anything wrong. It was an SEC approved scheme and we offered it to many of our clients as a gesture,” Paranjpe added.
“We sold the shares to individuals through investment bankers and we don’t know what their internal policies are,” he said, referring to conflict of interest issues.
According to Paranjpe, the impact of this event would not be significant as Wipro’s cumulative revenues from the World Bank in the last eight years was less than $ 1 million.
According to the Wipro statement, “To date, Wipro’s revenue from the World Bank is insignificant. Our inability to get future business from the World Bank will not adversely affect our business and results of operations.”
Experts don’t see a large impact of this on the industry going forward. Says Nasscom chairman Ganesh Natarajan, “Since Wipro did not feel that it was a significant development, it didn’t come out with a clarification before. However, now that the World Bank has made its disclosure, Wipro has too. We hope there will be no impact on the industry going ahead.
WORLD BANK WOES
Wipro Technologies
Term: 4 years
Imposed: June 2007
Reason: Providing improper benefits to Bank staff
Satyam Computer Services Ltd
Term: 8 years
Imposed: September 2008
Reason: Providing improper benefits to Bank staff and failing to maintain documentation to support fees charged for subcontractors
Megasoft Consultants Ltd
Term: 4 years
Imposed: December 2007
Reason: Participating in a joint venture with Bank staff while also conducting business with the Bank
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