Wipro Limited, Indias third-largest software exporter, is set to launch a sponsored American Depository Receipts (ADR) offering that

could possibly see the promoters and promoter group led by Azim Premji offloading some of their stake in the company, two people familiar with the development told ET NOW. The company has been in active discussions with investment banks Goldman Sachs, Morgan Stanley, Credit Suisse and Citi to manage the proposed offering. The size of the issue could be above $1 billion, a top investment banking executive said on condition of anonymity. As a result of this issue, over 5% of Wipros shares in the Indian market will get converted into ADRs, according to sources familiar with the development. The move is seen as a huge upside for its shareholders, as they will be able to sell their shares at a premium in the US market. In response to a detailed e-mail query from ET NOW, a Wipro spokesperson said the company cannot comment on the development, as it is currently in the silent period till the announcement of the third-quarter results on January 20. The Wipro scrip surged to its 10-year high of Rs 752 after ET NOW broke the story on Thursday. The Wipro ADR closed at $23.70 on the New York Stock Exchange (NYSE) on Wednesday. On Thursday, it had slipped 6.6% to $22.14 at 2300 IST. In a sponsored ADR issue, the proceeds from the offering do not flow into the companys books, but go to the shareholders. There is, hence, no fresh issue of equity by the company. However, the company backs the offering and gives its existing shareholders the opportunity to tender their shares to the ADR offering. The shares tendered are held by a depository and converted into ADRs which are floated on the New York stock exchanges. The shareholders who eventually agree to tender their shares are given the opportunity to do so on a pro-rata basis and through a book-building process. It is normally done by companies whose ADR prices are trading at a substantial premium to local stock prices. In Wipros case, the premium is currently as high as 46%. The executive quoted above added that the company is exploring a sponsored ADR issue as the promoter stake is quite high and the free float, or the number of shares traded in the market, is, hence, limited. Wipro chairman Azim Premji and his family together own 79.61% in the company, according to a filing made to the Bombay Stock Exchange (BSE) on December 31, 2009. Through the issue, the promoter group will also be reducing their stake, in line with what the market regulator and the government have been pushing for, a public float of at least 25% in listed companies. To introduce more transparency and participation in the Indian stock market, the finance ministry had proposed through a discussion paper released in February 2008 that public shareholding for listed companies be raised from the current 10% to 25%. An executive

close to the company said this could also be one of the factors that Wipro has taken into account while planning the offering. The gap between the price at which the ADR is currently trading and the price of the underlying Indian share offers an arbitrage opportunity to existing shareholders of the company which they could monetise at the time of the offering, the banker added. However, Wipros high ADR premium is attributed to its low float when compared to Infosys. With a large increase in free float after the ADR issue, there are chances of the discovered price being lower than the current ADR prices, as premiums shrink with increase in float. In the past, Wipros larger rival Infosys did three such sponsored ADRs, which met with huge investor interest in the US. Infosys ADRs traded at a discount of 0.4% in New York on Thursday. In November 2006, shareholders of Infosys sold shares worth $1.5 billion to overseas buyers as part of the companys sponsored ADR issue. The move was aimed at getting into the Nasdaq 100 Index, the first ever by an Indian company. Infosys had also done a sponsored ADR issue worth $1 billion in 2005, its second such offer.