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Mkts, Industry, Govt Reel As IT Czar Confesses To India’s Largest Corporate Scam
Hyderabad/Mumbai: The irony lies in the name — Satyam, meaning truth. The real truth is that Ramalinga Raju, the politically-connected promoter-chairman of Hyderabadheadquartered Satyam Computers, was lying for years to shareholders, employees and the world at large, building up to India’s largest corporate fraud of over Rs 7,000 crore.
India’s fourth largest IT company — after TCS, Infosys and Wipro—was for years cooking its books by inflating revenues and profits, thus boosting its cash and bank balances; showing interest income where none existed; understating liability; and overstating debtors position (money due to it).
The 54-year-old, US MBA Raju’s letter of guilt and resignation to the Satyam board
and Sebi on Wednesday morning sledgehammered India Inc, dumbfounded regulators, pummelled the company’s stock, knocked the bottom out of the market, and cast a long shadow over industry in general and the IT sector in particular. It also raised disconcerting questions about corporate governance, the role of auditors (in this case Pricewaterhouse Coopers) and independent directors (Satyam has/had such luminaries such as ISB dean M Rammohan Rao, Harvard’s Krishna Palepu and former cabinet secretary T R Prasad).
This wasn’t some fly-bynight operator that had been caught out. Satyam is listed on the NYSE, boasts 185 Fortune 500 companies and the US government among clients and
employs 53,000 people—that’s equal to the combined number of employees of Tata Steel and Tata Motors
(30,000 and 23,000 respectively).
Within hours of the Satyam scandal hitting the headlines, its employees had flooded job portals in search of employment. Consider that the Rs 7000-plus crore hole in Satyam’s books is way more than the company’s entire salary bill of Rs 5040 crore last year. Worse still, it’s running really low on cash, and once-potential suitors have turned wary—they don’t know what lies beneath.
As for Satyam’s shareholders, the stock had gone into free fall before most of them could make a decent exit. By the end of the day, massive selling by FIIs had driven the stock down by almost 78% to below Rs 40 from Tuesday’s close of over Rs 179, wiping out Rs 9376 crore of investor wealth in one day. Compared to its closing price of Rs 225 on December 15, the stock is down more than 82%. The day after, Raju announced his ill-fated plan to shell out $1.6 billion to acquire his sons’ companies, Maytas Properties and Maytas Infra. The furore that followed forced Raju to backtrack. It now transpires that what was seen as his move to bail out his sons was actually a last-ditch effort to cover his tracks through fictitious cash transfers and wriggle out of a tight corner.
The timing of what is being called ‘India’s Enron’ could not have been worse — just when the market was showing signs of responding to the Centre and RBI’s moves to stimulate the economy. A day after the sensex crossed the 10,000-mark, it plunged by 749 points, wiping out almost Rs 1.3 lakh crore of market capitalization.
There’s intense speculation as to what finally triggered Raju’s confession of wrongdoing. It’s clearly more than coincidence that it came hot on the heels of DSP Merrill Lynch’s letter to the company on Tuesday terminating its days-old agreement with Satyam to advise it on strategic options because of “material accounting irregularities’’. But the beginning of the end came when investors forced Raju to reverse his Maytas moves.
By end of Wednesday, the knives were out with Sebi, the exchanges, Indian Chartered Accountants Institute, department of company affairs and institutional investors announcing/considering a flurry of probes/actions against Raju, Satyam and its auditors.
Fearing violence, Hyderabad cops threw a cordon around Satyam’s offices and Raju’s home in Jubilee Hills as the interim CEO moved into damage-control mode.
RAJU Ban Gaya CONMAN
Dec 16 | Satyam plans to acquire 100% & 50% stakes in R Raju-promoted Maytas Properties and Maytas Infra for $1.6bn Dec 17 | Investor fury forces buyout rethink Dec 19 | Registrar of companies asked to help probe if Maytas deal violated norms. UK’s Upaid Systems accuses Satyam of fraud, forgery & breach of contract
Dec 23 | World Bank bars Satyam for eight years for data theft and ‘bribes’
Dec 26 | Oldest board member M Srinivasan resigns
Dec 29 | Directors K Palepu and R Rao quit. Promoters have pledged their holdings to institutional investors, BSE told
Jan 1 | AP CM gives company a clean chit
Jan 6 | Satyam promoters’ stockholding falls from 5.1% to 3.6%. Scrip rises 7% on reports of all-share merger with rival Tech Mahindra
Jan 7 | The truth is out IMPLICATIONS
Employees | Flooding job portals with CVs
Clients | Likely to rush to Infy, Wipro & TCS
Shareholders | Lose Rs 9,374 crore in a day, worse to come
R Raju | Faces civil and criminal prosecution, possible jail term
FOR INDIA INC
Auditors |PwC faces ICAI probe, lawsuits; wider measures likely
Markets | Lose wealth amounting to Rs 1.3 lakh cr
Independent directors | Govt promises “severe” action against them
IT Sector | Credibility issues in the short term SATYAM SHAREHOLDERS HAMMERED
Tuesday Close (Rs)
Wednesday Close (Rs)
Raju on Jan 7...
The gap in balance sheet arose because of inflated profits over several years… Every attempt to eliminate the gap failed…It was like riding a tiger and not knowing how to get off without being eaten…
...On Dec 30
Satyam has won numerous awards for excellence in corp governance, including Golden Peacock Global Award twice, most recently in 2008…