MUMBAI, SEP 26: Some of the risk factors of infotech major Wipro Ltd, which is launching a $200 million American Depository Share (ADS) issue in the US, are likely to raise eyebrows in financial circles. The company's offer document which lists risk factors like concentration of ownership in the hands of its chairman Azim Premji - who is also the richest Indian - and the end-use of ADS proceeds makes interesting reading for Indian shareholders. In its application submitted to the Securities and Exchange Commission of the US, the company says ``our Chairman of the Board and Managing Director, Azim H Premji, will control our company, which limits your ability to influence or control corporate actions. This concentration of ownership may also reduce the market price of our ADS.'' The offer document also reveals the higher equity holding of Premji in the company. ``Our largest shareholder, Premji, will beneficially own an aggregate of approximately 84.26 per cent of our equity shares following this offering, or 84.11 per cent if the underwriters' over-allotment option is exercised in full. As a result, Premji will be able to exercise control over most matters requiring approval by our shareholders, including: the election of directors, altering our Articles of Association, approval of significant corporate transactions, issuing additional shares of capital stock or commencing a liquidation.'' This means public, FIs, FIIs and mutual funds are left with only 15.74 per cent stake in the company and there is no second line of leadership. Premji's stake is worth a whopping Rs 54,790 crore on the basis of Wipro's share price on Monday. ``Premji's interests may differ from our other shareholders or holders of our ADS and could result in a delay or prevention of a change in control ofour company even if a transaction of that sort would be beneficial to our other shareholders, including the holders of our ADS, or in the best interest of our company,'' it said. What is more curious is that the company has no specific project which needs a huge fund from the ADS issue. ``We have not committed the net proceeds of this offering to any particular purpose, although we are not permitted to use the proceeds to purchase real estate or to purchase securities on stock exchanges pursuant to restrictions imposed by the Ministry of Finance of the Government of India. Investors will be relying on the judgment of our management regarding the application of these proceeds, which may include ways with which you do not agree,'' it says. However, the company adds: ``We intend to use the net proceeds for general corporate purposes, including possible strategic investments, partnerships and acquisitions.'' The company is also quite candid about its revenue generation. ``Our global IT services revenues depend to a large extent on a small number of clients, and our revenues could decline if we lose a major client. While we currently derive, and believe we will continue to derive, a significant portion of our global IT services revenues from a limited number of corporate clients we continue to reduce our dependence on any revenues from service rendered to any one client. The loss of a major client or a significant reduction in the service performed for a major client could result in a reduction of our revenues. For the fiscal years ended March 1999, March 2000 and the quarter ended June 2000, General Electric, our largest client accounted for 19%, 15% and 10% of our global IT services revenues, and for the same periods, our ten largest clients accounted for 55%, 53% and 47% of our global IT services revenues. Thus, a major client in one year may not provide the same level of revenues in a subsequent year. Wecurrently anticipate a significant reduction in the services performed for at least one of our five largest clients over the next one year period,'' itsays. Says the offer document, ``We may engage in future acquisitions, investments, strategic partnerships or other ventures that may harm our performance, dilute our shareholders and cause us to incur debt or assume contingent liabilities. We may acquire or make investments in complementary businesses, technologies, services or products, or enter into strategic partnerships with parties who can provide access to those assets. We may not identify suitable acquisition, investment or strategic partnership candidates or if we do identify suitable candidates, we may not complete those transactions on terms commercially acceptable to us or at all. If we acquire another company, we could have difficulty in assimilating that company's personnel, operations, technology and software.''
