Debt-laden software company Spanco defaults on salaries

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BANGALORE: Project delays and an inability to raise money from banks have pushed Mumbai-based software and BPO company Spanco into a situation where it has not paid a majority of its 15,000 staff for at least four months, people familiar with the matter said.
Insufficient working capital has led to projects delays, which in turn froze payments from clients, pushing Spanco into a vicious circle of debt and default. Spanco works primarily in government, power distribution and telecommunications sector.
The company put the number of staff whose salaries have not been paid at around 200, but many employees that ET spoke to said at least 60% of them have been going without wages since November.
"The situation of cash flow is tight, but we have been able to pay salaries to employees on time," said Kapil Puri, chairman and managing director of Spanco. "It is only for a few projects, where we see delay in financial closure and this should not be impacting more than 200 employees."
Spanco, which competes with Tata Consultancy Services and IBM for government projects in Indian IT market, had won the Airtel BPO contract for Africa in 2011.
Tulip Telecom had also faced working capital issues and failed to pay its employees last year. It had gone into corporate debt restructuring programme.
Spanco's fate now depends on a debt restructuring plan it is negotiating with banks. Share price has fallen 84% from 120 in last February to about 19.5 now. Promoters, who own about 38% in the company, have pledged most of it for raising working capital.
In the nine months till December 31, Spanco's sales fell 42% to 815 crore from 1,405 crore during the same period a year ago. It had losses of 31 crore, compared to 51 crore profit last year and current debt is in excess of 900 crore. Puri said he expects Spanco to come out of the situation in 4-6 months. "We are trying to raise short-term debts and also looking to sell equity to venture firms or joint ventures and other partnerships for our power portfolio." A senior executive who left the company last month said on condition of anonymity that the problems faced by Spanco today is a manifestation of the problems that started 2-3 years ago.
"Failure to pay salaries started about six months ago. Before that, there was no specific date when you would expect the salary - your April salary might come around May 20 and such," said another mid-level employee. According to industry observers, troubles started in 2010 when Spanco won several large projects related to central government's initiative to use technology to monitor and reduce losses in India's power distribution infrastructure. Spanco had won projects in Bihar, Punjab, Maharastra, Chandigarh, Orissa.
Some of these projects are currently delayed and some under litigation. A senior state government official said that Spanco's Bihar power project is under court litigation, as the government agency terminated the contract due to delays, which Spanco has contested.

Courtesy: Economic Times