Telecom giant BT on Thursday sold 14.1 per cent, or 17.9 million shares, in Tech Mahindra to institutional investors for Rs 1,395 crore at Rs 777.73 per share and said it would consider further such sales in future.
The stake sale buzz took the company’s stock down on Thursday by 5.20 per cent to Rs 792.15 on the Bombay Stock Exchange. Following the sale, BT has reduced its stake in Tech Mahindra from 23.16 per cent to 9.1 per cent. The stake sale comes as Tech Mahindra and Mahindra Satyam are nearing their merger.
BT added Tech Mahindra continued to be a key supplier. The UK-based telecommunications player is the largest client for Tech Mahindra, contributing almost 36 per cent (as of June 30, 2012) to its revenue.
Meanwhile, the Auth-ority of Advance Rulings (AAR) has raised questions regarding Tech Mahindra’s corporate law practices by terming its option arrangement with its client AT&T entered prior to its IPO in 2006 as ‘circuitous’ and against public interest.
Justice P K Balasubramanyan, chairman of AAR, refused to give a ruling on Mahindra BT Investment (Mauritius)’s AAR application with respect to the issue of capital gains tax on its share transfer deal with AT&T citing circumvention of Securities and Exchange Board of India (Sebi) guidelines by the company while coming out with its IPO.
Mahindra British Telecom (now Tech Mahindra) had entered into an ‘options arrangement’ prior to its IPO, whereby SBC (now AT&T) would be granted options over the shares representing eight per cent of the enlarged fully diluted ordinary share capital of Tech Mahindra as on the date of that agreement on a condition that certain specified milestones related to the commercial framework agreement entered into by Mahindra-British Telecom and SBC Services were achieved.
When contacted, the company said, “While Tech Mahindra can decide its next steps, we wish to clarify the full particulars of the option agreement were disclosed in the draft red herring prospectus filed with Sebi. At no stage had Sebi questioned the rationale of the agreement nor had it objected to it. The agreement was disclosed to the investing public both in the red herring prospectus and the final prospectus and has been in the public domain since August 2006.”
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AT&T had purchased 8.07 per cent stake in the company in March 2010, which it sold for $107 million the next month.
Tax experts opine AAR’s not having given a ruling would make the company vulnerable before tax authorities. Meanwhile, AAR stated in another ruling that Mahindra Satyam’s $125-million settlement in a class action suit was taxable. While the company refused to comment on the tax issue, a senior official said, “The $125-million settlement includes taxes, compliance costs, attorney fees and expenses.”