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Citi crisis may hit Indian IT companies

November 25, 2008 03:06 IST
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Some top Indian information technology firms such as Tata Consultancy Services, Satyam Computer and Polaris could feel the heat if Citigroup decides to sell part of its business or look for partners to tide over its losses.

Analysts feel TCS' revenue might have an impact as Citi has signed an assured revenue agreement of $2.5 billion (Rs 12,500 crore) for a period of over nine years. This was the part of the $505 million acquisition of Citigroup Global Services -- the business process outsourcing arm of Citigroup -- by TCS a few months back.

When contacted, a TCS spokesperson said, "TCS announced its intention to acquire Citigroup Global Services in October and the transaction is proceeding as per the terms of the agreement in a planned manner. Our agreement with Citigroup adequately addresses our interests in case of a sale or merger of the bank."

However, analysts are not convinced. Citi is a $300 million account for TCS. With the acquisition of CGSL, Citi not only catapults itself as the largest client for the IT giant but also means an account size of half a billion. Experts point out that Citi would easily account for around 5-6 per cent of the IT giant's revenue.

"Whenever the ownership of a company changes, all the contracts and deals come under the review of the new owner. So, in case Citi has a change of owners, we assume even the $2.5 billion contract will also come under review. It's too early to predict anything. But there are chances of price negotiations," said another deal tracker.

Analysts said they are  hoping that TCS has made no upfront payment. "However, we think TCS would have structured the deal accordingly and would have built such a scenario into the contract," they said.

TCS is not the only IT firm. Satyam, India's fourth largest IT firm might also be impacted as Citi is part of its top 10 clients.

Polaris is another firm that may be in a spot if Citi sells some of its business units. "Citi does source some work to Polaris as well. But the biggest impact would be if Citi sells its stake in Polaris, which is over 40 per cent," said an analyst. Citigroup holds 22.88 per cent in Chennai-based Polaris and an additional 20.45 per cent through its wholly-owned subsidiary, Orbitech. 

The rumours on Citigroup led to changes in share prices of the Indian IT companies in different ways. While the TCS stock price went up by 7.8 per cent to close at Rs 506 on Friday, Satyam was up 3.08 per cent. However, Polaris was down by 0.52 per cent on buzz that Citi might sell its stake in the company.

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