Now showing, prelude to private equity exit from Genpact

Business process outsourcer Genpact Ltd appears to be paving the way for its large shareholders General Electric Company, General Atlantic, Oak Hill Capital Partners and Wells Fargo to easily sell all or part of their holding in the company.

Genpact, whose chief executive Pramod Bhasin pulled a stunner last month by stepping down, has amended relevant shareholder agreements to permit all major shareholders — who together hold 56% equity — to individually sell their holding.

The BPO firm was listed on the New York Stock Exchange (NYSE) in 2007, and last month it acquired Headstrong for $550 million.

“In essence, the amendments, which are technical rather than substantive in nature, allow General Atlantic, Oak Hill, GE and Wells Fargo to each act more independently with respect to their Genpact holdings,” said Gail Ferrari Marold, an assistant vice president at Genpact and its official spokesperson.

Prior to the amendment, there were certain consensus requirements and co-sell rights built into the shareholder agreement that tightly bound the major investors together, effectively making sale by any individual shareholder very difficult and time consuming.

General Electric owns 9.1%, while General Atlantic Partners and Oak Hill together hold 40.5% equity in Genpact, that was originally set up as GE’s back office in India in 1997.    

Wells Fargo through its ownership of Wachovia, which filed for bankruptcy in the immediate aftermath of Lehman crisis of 2008, holds 6.3% in the India-based BPO.

Marold did not, however, throw any light on why the company is amending the shareholder agreement now.

“There is no proposal as on date that I am aware of, for share sale by any of the major shareholders,” said Bhasin, who is now non-executive vice chairman at Genpact. “But I won’t be able to say that there won’t be any tomorrow. We are a public entity and shareholders are free to sell when they want.”

The amendment also provides for Genpact to register the shares owned by the major shareholders with US market regulator Securities and Exchange Commission or SEC - more often than not, a precursor to an open market sale. A registration is a standard procedure that precedes a second offering of shares.

Such registration would “provide these shareholders some additional flexibility in trading their Genpact shares,” Genpact’s Marold said. “This has the potential to improve our share liquidity and diversify our investor base.”

To be sure, while Marold doesn’t indicate an imminent sale, the portends of the recent move reveals that the company is facilitating more shares to be offered for trading in the market by its incumbent shareholders.

In fact, in March 2010, major shareholders in Genpact together sold 33.6 million shares in a secondary offering on NYSE for $504 million.

Last week, JP Morgan upgraded Genpact to a neutral rating from underweight earlier.

Interestingly, in the mandatory regulatory disclosures in a June 8 report by analysts Tien-tsin Huang and Puneet Jain, the US brokerage said it “expects to receive, or intends to seek, compensation for investment banking services in the next three months from Genpact”.

JP Morgan was a co-lead manager for the $504 million secondary offering on NYSE last March.

Genpact that employs around 43,000 people to generate $1.3 billion in revenues in 2010, was valued at valued at $3.4 billion on NYSE on Monday when the shares were trading at $15.57 apiece.