WORLD BANK DISCLOSES BANNING OF WIPRO TECHNOLOGIES AND HYDERABAD SOFTWARE COMPANY MEGASOFT SINCE 2007

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WIPRO Technologies and Hyderabad software company Megasoft were embarrassed by a belated public disclosure by the World Bank that they had been barred from its contracts in 2007, but both the companies said the decision would have no impact on their revenues.

The World Bank said it had barred Wipro for four years for providing “improper benefits to bank staff”, timing its disclosure at a particularly bad time for an Indian IT industry that is keen to prevent damage to its reputation following revelations of financial fraud at Satyam Computer Services.

Wipro shares fell 9.3% to Rs 227.35 on BSE while the Megasoft stock closed flat at Rs 15.75, recovering from a nearly 13% drop intra-day.

Megasoft said it had been banned for four years for having a joint venture with a former employee of the bank. Software industry officials and IT analysts were of the view that the disclosure was uncomfortable because of its timing, but that it would have no adverse impact on Wipro or other Indian technology firms.

“THE Wipro stock fell because of knee-jerk short-selling by retail investors. But the company is seen as an ethical organisation with excellent corporate governance and there will be no impact on its revenues,” an IT analyst at a top broking house said on condition of anonymity.

The ban on Wipro was ostensibly because the software company had awarded shares to World Bank staff in 2000 as part of its American Depository Share (ADS) issue programme. The ban was imposed in 2007, a year after the bank came up with a stricter procurement policy, and made public only now.

“We offered 1,750 shares at the issue price (around $72,000) to World Bank officials through our merchant banker after they signed a mandatory no-conflict of interest,” said Wipro co-CEO Girish Paranjpe. A World Bank representative said it had asked Wipro in 2000 whether the company had awarded any shares to bank officials and the Bangalore firm had denied doing so. “World Bank has always asked prospective vendors to disclose any such allotment of shares as we do not favour awarding contracts to those who have given shares to our officials,” the representative said.

Wipro officials could not be reached for their reaction to this comment at the time of writing. Both World Bank and Wipro agreed in July 2007 to keep news of the ban confidential, CFO Suresh Senapathy had said earlier, and the bank decided a few days ago to make the revelation following the disclosure of fraud at Satyam.

The World Bank had cited Satyam providing “improper benefits to bank staff” as one of the reasons for blacklisting the company, but made the news public only last month even though it had taken the decision in September.
Megasoft CEO GV Kumar was quoted as saying in a statement that it has had no business from World Bank since 2004 and “hence there is no financial impact on the company from this announcement”.

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