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India’s Larsen Barred From World Bank Contracts for 6 Months

The logo of Larsen & Toubro Ltd. is displayed outside the company's headquarters in Mumbai. Larsen in January reported profit that beat analysts’ estimates as it tightened project execution costs and won new orders. Photographer: Kuni Takahashi/Bloomberg
The logo of Larsen & Toubro Ltd. is displayed outside the company's headquarters in Mumbai. Larsen in January reported profit that beat analysts’ estimates as it tightened project execution costs and won new orders. Photographer: Kuni Takahashi/Bloomberg

March 11 (Bloomberg) -- Larsen & Toubro Ltd., 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 rose 0.8 percent to 1,510.20 rupees at close of trading in Mumbai, erasing losses of as much as 2.8 percent. The stock has fallen 6 percent this year, compared with the benchmark S&P BSE Sensex’s 1.1 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.

To contact the reporters on this story: Stephanie Phang in Singapore at sphang@bloomberg.net; Karthikeyan Sundaram in New Delhi at kmeenakshisu@bloomberg.net

To contact the editors responsible for this story: Stephanie Phang at sphang@bloomberg.net; Anand Krishnamoorthy at anandk@bloomberg.net

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