Plans $25-million provision to cover any exposure

Hexaware has discovered about 11 unauthorised foreign exchange deals entered on the company’s behalf - Mr Atul Nishar

Our Bureau

Mumbai, Nov. 26 City-based IT firm Hexaware Technologies’ earnings for the current fiscal may take a dent, as it is expected to suffer a loss of about $20-25 million (Rs 80-Rs100 crore) owing to “potentially fraudulent” foreign exchange transactions conducted by a senior company official.

The unnamed official had committed Hexaware to several forex contracts involving ‘options’ during the last few months without proper authority and had actively concealed these transactions from the company board, Mr Atul Nishar, Chairman of Hexaware Technologies, said. The official was in the treasury department reporting to Mr Rajesh Ghonasgi, Chief Financial Officer.

“Hexaware has discovered about 11 unauthorised forex deals entered on the company’s behalf pertaining to currencies such as the dollar, Euro, Pound Sterling, Yen and Swiss Francs,” he added. However, the company did not give the total value of the contracts. Options contracts grant their buyers the right to buy or sell a security at a set price by a given date.

Hexaware now wants to soak up the losses in the current fiscal year itself and hence it is looking at unwinding most of these options in the current quarter. The company has set aside about $25 million to cover potential losses. “We have already reconciled with all the banks we deal with,” he said.

The company has constituted a special committee, comprising Mr Shailesh Haribhakti, Chairman of the Audit Committee, Ms Preeti Mehra, Partner Kanga & Co, and Mr L.S. Sharma, Member of Audit Committee, to conduct an internal investigation and suggest changes to the company’s foreign exchange management practices. The committee is expected to come out with its findings within 30 days.

The company has also placed an embargo on all options deals. Further, it has decided that future forex deals will necessarily have to be transacted jointly by two signatories out of the designated four from the top management.

Official suspended

The unnamed official has been immediately suspended, pending investigation.

A provision of about $25 million is about 10 per cent of Hexaware’s revenues. In the first nine months of 2007, the company had made a net profit of around Rs 88 crore. “The entire nine-month profit may be wiped off in the current quarter,” according to Mr N.V. Shah, Director, NVS Brokerage.

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(This article was published in the Business Line print edition dated November 27, 2007)
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