Citi may find it difficult to get buyers for its Polaris stake

November 22nd, 2008 - 5:42 pm ICT by IANS  

Chennai, Nov 22 (IANS) US banking giant Citigroup, which was reportedly in talks with some potential buyers to offload its stake in Polaris Software Lab Ltd, is facing several challenges to the deal, thanks to a cap on Citi’s voting rights.Polaris officials told IANS that though Citi owns 43 percent stake in the banking software major, its voting rights have been capped at 29 percent.

“The cap on the voting rights is a perpetual contract. Further, I have the right of refusal,” Polaris chairman and managing director Arun Jain told IANS.

If the right of refusal clause is included in a joint venture agreement, a partner should first offer the stake to the promoters if it wanted to offload shares.

Earlier, there were reports that Citi was in talks with some companies to dilute its stake in the Rs.10.99-billion ($222 million) Polaris.

Polaris, however, denied holding any talks with Citi in this regard.

“The cap on the voting rights is part of a watertight agreement. The restriction will apply to a prospective buyer of Citi’s stake. It is like selling property that is subject to a lien,” Polaris chief financial officer R. Srikanth said.

Added Jain: “As per our agreement, Citi cannot take decisions to dilute its investment without prior approval from Polaris management. We confirm that there has been no dialogue on this subject between Citi and Polaris.”

Presently, Jain and his associates hold around 30 percent stake in the IT company. Jain added that he did not have any plan to increase his holdings in Polaris.

According to Srikanth, Citi is a strategic, not a financial investor and hence there is no need to alter the shareholding pattern. Citi is also a major customer of Polaris that contributes around 42 percent of the latter’s revenue.

Unperturbed by the global financial crisis, Srikanth said Polaris’ expansion plans were on track and “Our cash and receivables total around Rs.6.38 billion”.

The company earlier this month acquired US-based product and component services company SEEC Inc.

He added that Polaris was cooperating with several leading banks for implementing progressive modernisation programmes.

“We have entered South America with a programme in Chile. This will serve as a good reference point for that market. In addition, we have entered southern Europe,” Srikanth said.

According to him, the company’s growth prospect is on track. “We are on track with the guidance of 10 percent sequential quarter to quarter growth.”

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