Monday, January 12, 2009

Wipro - Event Update - 'On the wrong side of World Bank bureaucracy' - Reduce (PL)


Latest Reports from Institutional Brokerage House Prabhudas Lilladher(P) Ltd on Wipro Made a ' Reduce " rating.

Highlights of the reports are as follows

* Debarred by World Bank: Wipro announced that the World Bank, in July 2007, debarred the company from participating in direct RFPs issued by the Bank from 2007-11. This is on account of what the World Bank terms as ‘inappropriate benefits to Bank staff’. Since the World Bank is not a client of Wipro at this point the future revenue impact is Nil. But given that this announcement comes on top of the Satyam scandal the market is concerned about the long-term reputation impact on the company.

* ADS offered at IPO price during the issue: As part of the Directed Share Programme (DSP) of the ADS listing in 2000, Wipro was allowed (as are all companies) to offer shares from the IPO to employees, vendors, clients, prospects, etc (basically all stakeholders) at the IPO prices. Accordingly Wipro offered the same to most of its stakeholders in the US. About 50% of the DSP was subscribed by employees while the rest was subscribed by vendors and clients. Wipro offered the shares (1,750 worth about U$72000 then) to some World Bank staff (and many other clients and prospects) through the CIO of World Bank. It also took a written undertaking from them that this does not conflict with their internal guidelines. Seven years latter the World Bank discovered this through its internal audit and as per its guidelines barred Wipro from doing business with the Bank for four years.

* Unintentionally caught up in World Bank bureaucracy: World Bank as an organization is legendary for its bureaucracy and red tape. The fact that it took nearly seven years to discover this issue itself is indicative of the state of affairs at the Bank. We believe Wipro might have been in an error of judgment but certainly not guilty of bribing since the shares were fully paid for by the subscribers. We are clear in our mind that it is a case of unintentional transgression, and a minor one at that. We don’t see any long-term consequences of this issue on the business of Wipro.

Read the full report WIPRO(PL)