Larsen & Toubro Ltd. (LT), India’s biggest builder of power networks and airports, has been barred from World Bank-financed contracts for six months under the lender’s fraud and corruption policy.
Larsen is ineligible to be awarded a contract from March 7 to Sept. 6 this year, according to a listing published on the World Bank’s website. The sanctions aren’t expected to have a “material impact” on the company’s operations, profitability or financials, Mumbai-based Larsen said in a statement to the stock exchange on March 9.
The builder was declared ineligible to bid for World Bank- funded contracts because of misrepresentation or omission of facts to influence a procurement process or the execution of a contract, according to the lender’s rules. The sanctions come as Larsen is scouting for overseas contracts as slowing economic growth damp demand in India.
“The ban isn’t going to affect Larsen’s ability to win orders in the long run,” said Jinal Joshi, a Mumbai-based analyst with BOB Capital Markets Ltd. who recommends buying the stock. “It’s only the sentiments that will be affected and may be they’ll lose out on a couple of opportunities in the short term.”
Larsen declined as much as 2.8 percent to 1,455.25 rupees and changed hands at 1,487.55 rupees at 10:15 a.m. in Mumbai trading. The stock has fallen 7.4 percent this year, compared with the S&P BSE Sensex’s 1.4 percent gain.
Violation of Rules
Larsen hasn’t been working on World Bank-financed contracts since March 2011 when the violation of rules by an employee in 2008 was first noticed, Deepak Morada, a spokesman for the company, said in a telephone interview today.
“The act of one employee doesn’t reflect the code of conduct of the organization,” Morada said. “The employee has been let go,” he said without giving further details.
Overseas projects accounted for 19 percent of Larsen’s revenue in the year ended in March 2012, according to data compiled by Bloomberg. Chief Executive Officer Krishnamurthi Venkataramanan is counting on more orders from utilities and the oil and gas industry.
In December 2008, the World Bank imposed an eight-year ban on India’s Satyam Computer Services Ltd. for providing “improper benefits” to bank employees. Two weeks later, Satyam Chairman Ramalinga Raju admitted to an accounting fraud, prompting India’s government to fire the company’s board. Satyam was later acquired by Tech Mahindra Ltd.
Billionaire Azim Premji’s Wipro Ltd. said in January 2009 that it had been barred by the World Bank more than 18 months earlier for four years. The software exporter was barred from June 2007 for offering World Bank employees shares in its stock offer in the U.S. in 2000.
The purchase didn’t violate any ethics or conflict of interest policies, Wipro had said.