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Wipro ADR downsizing casts a shadow

Wipro has become the second Indian company this fiscal to have downsized its ADR offering, following the downsizing and delay in the Zee ADR launch.

Late Wednesday night, Wipro announced the downsizing of its indicated issue price from $ 63.86 to $ 52.48 to the US markets regulator, the Securities and Exchange Commission. This would trim the proposed issue size from $175 million to $136.3 million (Rs 6.3 billion, at the current exchange rate).

The company, which boasted of a market cap of Rs 630 billion at the domestic market (when it first announced its schedule for the ADR offering), has thus failed to offer even 1 per cent of its market cap in the international markets.

The weakened sentiment for technology-based stocks on the US markets has been the key factor leading to the downsizing, besides the downgrading of the foreign currency issue outlook for India by Standard & Poor's.

However, there have been a string of other factors too. First, the clouded nature of disclosure on the promoters' holdings. Second, the sharp volatility in the underlying share a few months prior to the ADR offering, and third, controversies relating to the resignation of former vice chairman Arun Thiyagarajan. The resignation denied Thiyagarajan any rights over his stock options.

Officials at JM Morgan Stanley, lead managers to the ADR offering, and Wipro officials were unavailable for comment. However, senior investment bankers are of the view that the Wipro ADR will continue to be affected by the uncertain market conditions, and that there is a possibility of the roadshows getting curtailed by a few days if the demand weakens.

According to Amit Chandra, country head and senior vice president of DSP Merrill Lynch Ltd, "The timing was wrong. You cannot move against the markets. There is a clear feedback from the US investors that the sentiment for tech stocks is weak. And this comes despite the fact that the base for such companies is probably wider, considering the sector based funds and high net worth individuals who have shown interest in US companies.''

The Wipro decision could also affect the ADR plans of other companies such as BPL Cellular, Infosys Technologies, and HCL Technologies.

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