| World Bank bars Wipro, Megasoft from deals | |
| BS Reporters / Bangalore/mumbai January 13, 2009, 0:32 IST | |
The Indian IT industry’s reputation for good corporate governance took another knock today with the World Bank revealing that it had also barred Wipro Technologies and Megasoft Consultants from receiving direct contracts from the bank under its corporate procurement programme.
 The restrictions on Wipro and Megasoft were imposed for, respectively, offering Bank employees shares and setting up a joint venture in China with a former bank employee.
The multilateral institution had imposed a similar ban on Satyam Computer late last year for breach of confidentiality.
Figures are hard to come by but analysts estimate that the IT industry gets $25 million to $30 million worth of contracts annually from the World Bank.
Besides Satyam, which has been debarred for eight years, Wipro Technologies, India’s third-largest IT entity, and Megasoft have been debarred for four years starting June 2007 and December 2007, respectively.
This has come as a further blow to the IT industry, which is already reeling under the adverse effects of a global recession, slowdown in banking, finance and insurance industry customers and the fallout of the Satyam financial fraud.
Wipro’s stock price was battered 10.6 per cent at close and mid-cap firm Megasoft’s stock price was down 3 per cent in intra-day trading, but recovered and closed at Rs 15.75, a drop of 0.63 per cent.
“Wipro’s revenue from the World Bank is insignificant (around $1 million). Our inability to get future business from the World Bank will not adversely affect our business and results of operations,” a Wipro statement clarified.
The Wipro management explained, in 2000, it had offered a commonly-used and Securities and Exchange Commission (SEC)-approved direct share programme, which allowed employees and clients to buy American Depository Receipts (ADRs) at the initial public offer price.
The allotment was made under the directors’ quota when the ADRs were issued on the New York Stock Exchange in 2000. The company had issued around 46,000 shares to its own employees who were working outside India, and to a few people outside Wipro.
In the latter category was an offer, conveyed through World Bank’s Chief Information Officer (CIO) and a senior staffer, and they directed this offer to family members and friends.
Around 20 Wipro employees and three people from the World Bank were allotted ADRs with the condition that there was no conflict of interest with their position.
The three World Bank employees bought 1,750 shares under this scheme for about $72,000. Under the disclosure, no one was entitled to more than 2,000 ADRs.
The company had issued these shares at $41.375 per ADR (equivalent to one underlying share), which was also disclosed in the prospectus filed with the SEC. The pricing was based on the last closing price on Bombay Stock Exchange, which was a little over Rs 1,900 per share.
Despite the clarification the market is not happy. “In Wipro’s case the announcement does not have much business impact as much as it has on corporate governance,” said an analyst tracking the company.
Like Wipro, Megasoft said World Bank’s move had “no material effect” on the company.
“We have had no business from the World Bank since 2004 so there is no financial impact on the company due to this announcement,” said G V Kumar, Managing Director and CEO.
The company said the World Bank had approached it in 2007 seeking details about Megasoft’s China operations, which the company had set up with a former World Bank employee.
“This is very old news. The former World Bank employee was on our board from 2003 to 2006 end. And the joint venture did not work and we could not be successful; so we decided to close it down in 2006. So we are surprised that this issue is being raised now because he had been our board and we had disclosed this in our annual report and in our announcements to stock exchanges. Every detail about our China operations is public information. So why do you wake up now?” asked Kumar.
He explained that it was common for people retiring from government or institutions like the World Bank or IMF to join private firms as directors and so on. “So we did not find anything wrong with that. He even did not receive a sitting fee because we never pay board members sitting fees,” Kumar added.
“Having an ex-World Bank employee on board is no sin,” added Kumar.
Overall, the Bank has debarred five Indian entities and an individual. Other than these IT firms, it has also debarred non-IT entities Nestor Pharmaceuticals, Gap International, and an individual named Surendra Singh.
“With regard to Nestor I can say this much that we were unfairly debarred by the World Bank in 2007 for three years for unsubstantiated claims of 'collusive practices' for having the same price as that of a competitor in one tender out of the hundreds of tenders in which we participated,” said Rahul Sehgal, President Nestor Pharmaceuticals.
“This tender was not even decided and that there was no ‘cause of action’ for such a debarment. This action was based on complaints by our competition, which lost business to us since we supplied the best quality medicines at the lowest prices under the Reproductive and Child Health projects. The scrutiny of the World Bank was insufficient and inconclusive and we have all documents to prove this,” Sehgal added.
The World Bank publishes sanctions for all project loans and said it will now publish debarments on corporate procurement as well. A World Bank spokesperson said this was being done “in the interest of transparency and fairness, and to eliminate public confusion over differences in disclosure practices”.
The spokesperson added, “We believe that such disclosure of corporate debarments may also be of interest to other development agencies and governments who undertake due diligence on their vendors. Public disclosure may also be an incentive for vendors to ensure their own good governance.”
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