Satyam Computers-Ramlinga Raju: A Rs 7,000 crore lie-2

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. It created such a furore that Raju was forced to backtrack. But what was widely seen as a move by Raju to bail out his sons was actually aimed at covering Satyam’s tracks through fictitious cash transfers (details inside).

 

The timing of what is being called `India’s Enron’ could not have come at a worse time – just when the stock market was showing signs of responding positively to the Centre and RBI’s moves to stimulate the economy through interest rate cuts, duty reductions and accelerated government spending. A day after the sensex crossed the 10,000-mark, it plunged by 749 points, wiping out almost Rs 1.3 lakh crore (or trillion) 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 investment banker DSP Merrill Lynch’s letter to the company on Tuesday evening (followed by another to Sebi this morning) terminating its 10-day-old agreement with Satyam to advise it on strategic options because of “material accounting irregularities”.

 

But the beginning of the end came when furious investors forced Raju to reverse his decision to acquire the two group companies (Maytas Properties and Maytas Infra), robbing him of his last chance to wriggle out of a very tight corner.

 

By the end of Wednesday, the knives were out with Sebi, the stock exchanges, the Indian Chartered Accountants Institute, the department of company affairs and institutional investors announcing/considering a flurry of probes/actions against Raju, Satyam and its auditors. NYSE has halted trading in Satyam ADRs (American Depository Receipts).

 

Fearing violence, the Hyderabad police threw a cordon around Satyam’s offices and Raju’s residence in upmarket Jubilee Hills even as the company’s wholetime director-now-interim CEO Ram Mynampati, after expressing “shock”, swung into damage control mode.

 

source: The Economic Times

Satyam Computers-Ramalinga Raju: A Rs 7,000 crore lie-1

Good Morning Friends, it is really hard for a individual to believe Satyam Computers news. Satyam Computers, one of India’s largest IT Company come up with India’s largest-ever corporate fraud. One question is just can’t go away from my mind whom to trust now and whom to not?

 

The irony lies in the name – Satyam, meaning truth. The real truth is that Ramalinga Raju, the politically-connected, 

promoter-chairman of Hyderabad-headquartered Satyam Computers, was lying for years to shareholders, employees and the world at large, building up to India’s largest-ever corporate fraud of over Rs 7,000 crore.

 

The country’s fourth largest IT company – after TCS, Infosys and Wipro and ahead of HCL – was for several 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 sledge-hammered 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 its share of luminaries such as ISB dean M Rammohan Rao, Krishna Palepu of Harvard Business School who resigned and former union cabinet secretary T R Prasad).

 

This wasn’t some small fly-by-night operator that had been caught out. Satyam is listed on the New York Stock Exchange, boasts 185 Fortune 500 companies on its client list 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 across the world wide web in search of alternate 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 5,040 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 freefall before they could even make a decent exit. By the end of the day, large-scale selling by foreign institutional investors, among others, had driven the stock down by almost 78% to just a shade below Rs 40 from Tuesday’s close of a little over Rs 179, wiping out Rs 9,376 crore of investor wealth in the space of a day. Compared to its closing price of Rs 225 on December 15, the stock is down more than 82%.

 

more in next post.

 

source: The Economice Times 

Satyam: Full text of Raju’s letter to the Board-3

 

1) A task force has been formed in the last few days to address the situation arising out of the failed Maytas acquisition attempt. This consists of some of the most accomplished leaders of Satyam: Subu D, T R Anand, Keshab Panda and Virender Aggarwal, representing business functions, and A.S.Murthy, Hari T and Murali V representing support functions. I suggest that Ram Mynampati be made the Chairman of this task force to immediately address some of the operational matters on hand. Ram can also act as an interim CEO reporting to the board.

 

2) Merrill Lynch can be entrusted with the task of quickly exploring some merger opportunities.

 

3) You may have a ‘restatement of accounts’ prepared by auditors in light of the facts that I have placed before you.

 

I have promoted and have been associated with Satyam for well over twenty years now. I have seen it grow from few people to 53,000 people, with 185 Fortune 500 companies as customers and operations in 66 countries. Satyam has an excellent leadership and competency base at all levels. I sincerely apologize to all Satyamites and stakeholders who have made Satyam a special organization, for the current situation. I am confident they will stand by the company in this hour of crisis.

in light of the above, I fervently appeal to the board to hold together to take some important steps. Mt T R Prasad is well placed to mobalize support from the government at this crucial time. With the hope that members of the Task Force and the financila advisor, Merrill Lynch (now Bank of America) will stand by the company at this crucial hour, I am marking copies of this statement to them as well.

 

Under the circumustances, I am tendering my resignation as the chairman of Satyam and shall continue in this position only till such time the current board is expanded. My contribution is just to ensure enhancement of the board over the next several days or as early as possible.

 

I am now prepared to subject myself to the laws of the land and fact the consequences thereof.

 

(B. Ramalinga Raju)

 

Copied marked to:

1) SEBI Chairman

2) Stock Exchanges

 

ref: The Economic Times

Satyam: Full text of Raju’s letter to the Board-2

would like the board to know:      

 

 

1. That neither myself, not the Managing Director(including our spouses) sold any shares in the last eight years-excepting for a small proportion declared and sold for philanthropic purposes.

 

2. That in the last two years a net amount of Rs 1,230 crore was arranged to Satyam (not reflected in the books of Satyam) to keep the operations going by resorting to pledging all the promoter shares and raising funds from know sources by giving all kinds of assurances (Statement enclosed, only to the members of the board). Significant dividend payments, acquisitions, capital expenditure to provide for growth did not help matters. Every attempt was made to keep the wheel moving and to ensure prompt payment of salaries to the associates. The last straw was the selling of most of the pledged share by the lenders on account of margin triggers.

 

3. That neither me, nor the Managing Director took even one rupee/dollar from the company and have not benefitted in financial terms on account of the inflated results.

 

4. None of the board members, past or present, had any knowledge of the situation in which the company is placed. Even business leaders and senior executives in the company, such as Ram Mynampati, Subu D T R Anand, Kesab Panda, Virender Agarwal, A S Murthy, Hari T, S V Krishnan, Vijay Prasad, Manish Mehta, Murali V, Sriram Papani, Kiran Kavale, Joe Lagioia. Ravindra Penu Metsa, Jayaraman and Prabhakar Gupta are unaware of the real situation as against the books of accounts. None of my or managing directors immediate or extended family members has any ideas about these issues.

 

 

Having put the facts before you, I leave it to the wisdom of the board to take the matters forward. However, I am also taking the liberty to 

recommend the following steps:

 

more in next post

ref: The Economic Times

Satyam: Full text of Raju’s letter to the Board-1

To the Board of Directors Satyam’s board members

 

Satyam Computers Services Ltd.

 

From B. Ramalinga Raju

Chairman, Satyam Computer Servcies Ltd

 

Dear Board Members,

 

It is with deep regret, and tremendous burden that I am carrying on my conscience, that I would like to bring the following facts to your notice:

 

1. The balance sheet carries as of September 30, 2008

 

a) Inflated (non-existent) cash and bank balance of Rs 5,040 crore (as against Rs 5361 crore refglected in the books)

 

b) An accured interest of Rs 376 crore which is non-existent

 

c) An understated liability of Rs 1,230 crore on account of funds arranged by me

 

d) An over stated debtor position of Rs 490 crore (as against Rs 2651 reflected in the books)

 

2. For the September quarter (Q2) we reported a revenue of Rs 2,700 crore and an operating margin of Rs 649 crore (24 per cent of revenues) as against the actual revenues of Rs 2,112 crore and an actual operating margin of Rs 61 crore (3 per cent of revenue). This has resulted in artificial cash and bank balances going up by Rs 588 crore in Q2 alone.

 

 

The gap in the balance sheet has arisen purely on account of inflated profits over a period of last several  years (limited only to Satyam standalone, books of subsidiaries reflecting true performance). What started as a marginal gap between actual operating profit and the one reflected in the books of accounts continued to grow over the years. It has attained unmanageable proportions as the size of the company operations grew significantly (annualized revenue run rate of Rs 11,276 crore in the September quarter, 2008 and official reserves  of Rs 8.392 crore). The differential in the real profits and the one reflected in the books was further accentuated by the fact that the company had to carry additional  resources and assets to justify higher level of operations – thereby significantly increasing the costs.

 

Every attempt made to eliminate the gap failed. As the promoters held a small percentage of equity, the concern was the poor performance would result in a takeover, thereby exposing the gap. It was like riding a tiger, not knowing how to get off without being eaten.

 

The aborted Maytas acquisition deal was the last attempt to fill the fictitious assets with real ones. Maytas’ investors were convinced that this is a good divestment opportunity and a strategic fit. Once Satyam’s problem was solved, it was hoped that Maytas payments can be delayed. But that was not to be. What followed in the last several days is common knowledge.

 

More in next post…..

 

ref: The Economic Times

Satyam Computers-Ram Mynampati, Interim CEO

Satyam computers under Indian’s largest company fraud. Read the transcript of recorded video message by Ram Mynampati, Interim CEO.

 

I am shocked and distressed by the disclosures coming from the organization. I can certainly understand and empathize with the pain that every one of you would be going through based on the events of today.

 

The Board has requested that I assume the role of the Interim CEO to ensure the sustenance of the operations of the organization.

 

The Board will meet as scheduled on January 10 to discuss the issues that we have already communicated as well as actions emanating from the events of today.

 

The most important thing, I believe, we need to address is the interest of the stakeholders – our associates, our customers and the suppliers.

 

The entire senior management team has come together not only to assess the impact of the disclosures but also to take specific steps to ensure continuity of operations across geographies.

 

I am confident that with the senior management team with me we would be able to quickly put the issues behind us and ensure continuity of our operations and our services delivered to our customers.

 

I also want to mention that the events today would largely be limited to one specific organization and should no way be construed as issues relating to the broader Indian IT industry, which continues to thrive and succeed in a broader competitive landscape.

 

I also want to assure you that we will do everything that we can as an organization to ensure that the stakeholders’ interests are protected and addressed. I would request your understanding and cooperation as we continue to confront challenging times for us.

 

Thank you.