HCL: Reader's Digest Bankruptcy Won't Affect Contract

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Indian outsourcer HCL Technologies said on Tuesday that its US$350 million outsourcing contract with media company Reader's Digest Association will be unaffected by the U.S. company's financial problems.

Reader's Digest said on Monday that it was planning to file for bankruptcy protection. It said it had reached an agreement in principle with a majority of its senior secured lenders on the terms of a restructuring plan that will reduce its debt.

As part of the agreement, Reader's Digest anticipates implementing the restructuring under court supervision through a voluntary prearranged filing under Chapter 11 of the U.S. Bankruptcy Code, it said.

HCL said in a filing to the Bombay Stock Exchange on Tuesday that it is "business as usual" for the company.

HCL announced in March that the seven-year contract with Reader's Digest involved IT infrastructure management, application development and other services in 45 countries and 14 languages across North America, Latin America, Europe and Asia.

Reader's Digest said in a letter to its suppliers and vendors in the U.S. that it expected that the majority of its vendors and suppliers would be unimpaired as a result of the anticipated Chapter 11 process. In a separate statement, Reader's Digest said the Chapter 11 filing only applied to its U.S. businesses.

Indian outsourcers have been hit by bankruptcies in the U.S., its key market, and also by the overall economic slowdown.

India's revenue from outsourcing services to clients abroad will grow by about 4 to 7 percent in the Indian fiscal year starting in April and ending March 31, 2010, the National Association of Software and Service Companies (Nasscom) said last month. Growth in revenue in the previous year was an estimated 16.3 percent, Nasscom said.

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