The Hindu Business Line : Nortel vendors in ‘wait and watch’ mode

Bangalore, Dec.10 Nortel Networks’ move to seek legal advice to find ways of bankruptcy protection has put key Indian IT vendors such as Wipro, Sasken Communication Technologies and Infosys on a ‘wait and watch’ mode.

The Wall Street Journal reported on Wednesday that the Toronto-based company has sought legal counsel to explore bankruptcy-court protection from creditors in the event of its restructuring plan failing, but quoted a company spokesperson as saying that “no bankruptcy filing is imminent”.

Nortel is a customer for Wipro, Sasken and Infosys and it declaring bankruptcy would mean delays in collecting receivables. For Sasken, which makes software for Nortel, the telecom equipment vendor is among the top five customers, besides being a large investor in the firm. Nortel owns close to 10 per cent stake in Sasken.

For the quarter ended September 30, 2008, Nortel posted a loss of $3.4 billion, partially due to sharp declines in sales, and said it would lay off 1,300 people as part of a restructuring exercise.

Back-up option

“It’s a back-up option. We are not really concerned,” said Ms Neeta Revankar, Chief Financial Officer of Sasken, when asked about the impact. “We think the result of the restructuring would be successful. Nortel’s payment track record is very good and there is no concern about payment. Even at this point in time, there is no significant overdue from them,” she added.

Sasken is reportedly seeking to hedge itself against receivables from key customers including Nortel as it had approached insurers seeking credit risk cover.

No off-hand response

Wipro Ltd, which is a product engineering vendor for Nortel for over a decade, said it is difficult to assess the impact of a bankruptcy immediately. “You cannot have an off-hand response. They go through an evaluation process that can take some time,” said Mr Rajendra Shreemal, Head of Treasury, Wipro.

However, from previous experiences the company has noticed that when a vendor gets qualified as a critical vendor, it does not face receivables pressures.

“In the case of Lehman, we got our money back. In the current situation when the US economy is under pressure, more such things would happen,” Mr Shreemal added.

An analyst with a Mumbai-based brokerage said Nortel would comprise about one per cent of Wipro’s total revenue, and it would be within their top 15 clients. He said in a situation like this it does become difficult for vendors to get their money.

Mr V. Balakrishnan, Chief Financial Officer, Infosys, said it is too early to comment. “They would look at bankruptcy if the restructuring fails. We will have to wait and see,” he said. If the restructuring is successful, Nortel would increase offshoring in a bid to cut costs, he added.

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