GE not to get automatic allotment in TCS issue

The US-based General Electric (GE) group, which was supposed to get a firm allotment in Tata Consultancy Services' (TCS) public issue, will now not get an automatic entitlement, thanks to the delay in TCS' public offer.

According to an agreement signed between Tata Sons and General Electric on May 28, 2001, GE was entitled to a stake in TCS Ltd., provided its IPO was launched before March 31, 2004.

Now that the relevant date has lapsed, GE will have to apply in the normal course in the IPO, as a qualified institutional buyer (QIB), if it still wishes to pick up a stake.

No details of GE's automatic entitlement were available and Tata group sources refused to comment saying that the company was in a "quiet period after filing the prospectus".

The TCS Red Herring prospectus, filed with the Securities and Exchange Board of India (Sebi), does not name the GE group, but group sources said the reference was to the GE group.

The relevant item notes (on page 61) "" "On May 28, 2001, Tata Sons entered into an agreement with one of its major customers, under which the customer had provided a loan of Rs 47 crore to the TCS division."

The agreement included "certain additional clauses which were contingent on the customer providing certain levels of revenue to the TCS division over a three-year period, and the occurrence of an IPO by any company into which the TCS division is transferred by Tata Sons."

When contacted, a TCS spokesperson said, "as a matter of policy, we would not like to speculate on the name of the client referred to on Page 61. The information given on Page 61 of the draft prospectus is all that sits in the public domain."

The agreement provided that in the event an initial public offering was not announced prior to March 31, 2004, an additional amount of Rs 70 crore, Rs 117.5 crore, or Rs 141 crore, would be payable depending on whether the customer provided revenues of at least $300 million, $400 million or $500 million in the three-year period ending March 31, 2003.

During the three-year period, the customer provided revenues to the TCS division in excess of $500 million, the prospectus notes.

Interestingly, the TCS prospectus says that the General Electric group is its largest customer accounting for 18.9 per cent of its total revenues of Rs 5,085.2 crore in the first nine months of 2003-04.

The General Electric group accounted for 20.6 per cent of TCS' revenue in 2003 and 24.4 per cent in 2002.