Satyam sunk by huge corporate fraud
Rs 8,000 crore approxDay’s loss: Rs 10,000 cr as investors dumped shares and the scrip fell by 78 per cent to Rs 39.95 at BSE
Staff number: 53,000Fallout: SEBI orders probe; regulator action in US may follow
Hyderabad, January 7
Under the shadow of an acquisition fiasco involving firms of his family members, the beleaguered chairman of Satyam Computer Services B Ramalinga Raju today made a disgraceful exit, admitting to major irregularities in the IT giant. If convicted, Raju faces up to 10 years in jail.
In a resignation letter to the company's Board of Directors, Raju made shocking revelations of accounting manipulations over the years and how balance sheet was inflated to show more profits.
The balance sheet has inflated cash balances of Rs 5,040 crore and accrued interest of Rs 376 crore was non-existent while Rs 1,230 crore, arranged to Satyam, was not reflected in the books.
Crisis has been brewing in the country's fourth largest software company ever since it made a controversial $1.6-billion proposal to take over Maytas Properties and Maytas Infra, both owned by Raju's sons. Following angry reaction from shareholders, the company backtracked on the deal but not before suffering a severe dent in its image.
This was followed by resignation of four independent directors on the Board.
Raju's resignation from the company he floated 21 years ago comes ahead of the January 10 Board meeting which will discuss restructuring of the management and share buyback proposal. He admitted that second quarter numbers were inflated to Rs 2,700 crore when the actual figure was Rs 2,112 crore. He said the other Board members were unaware of the real numbers.
The Satyam balance sheet, as on September 30, 2008, showed an overstated debtors position of Rs 490 crore as against Rs 2,651 crore as reflected in the books, Raju confessed in his letter. The gap in balance sheet has arisen purely on account of inflated profits over a period of last several years.
What started as a marginal gap between the actual operating profits and the one reflected in the books of accounts continued to grow over years. It has become unmanageable as the company operations grew significantly, he said.
"It was like riding a tiger, not knowing how to get off without being eaten," Raju said.
"Every attempt made to eliminate the gap failed. As promoters held a small percentage of equity, the concern was that poor performance will result in a takeover, thereby exposing the gap. The last straw was the selling of most of the pledged shares by the lenders on account of margin triggers," he said.
The aborted Maytas acquisition deal, he admitted, was the last attempt to fill the "fictitious assets with real ones"
Soon after his resignation letter was received, the company announced that his brother and managing director Rama Raju has also resigned.
Satyam shares nosedived by nearly 78 per cent to close at Rs 39.95 after the shocking development.
It is now feared that the Hyderabad-headquartered and New York Stock Exchange-listed company could face regulatory action in the United States.
Noting that he was carrying a "tremendous burden on his conscience", he apologised to the 53,000 strong employees of the company and said "I am now prepared to subject myself to the laws of the land and face the consequences thereof."
Raju will continue as chairman till the Board finds a replacement amid reports that the company president Ram Mynampati will take over as chairman. Mumbai: Rajiv Mehta, senior analyst with India Infoline, a large brokerage house said his firm has immediately stopped covering Satyam and many other brokerage houses are also expected to do the same. There will not be any investor interest in the company anyway. The company may be removed from Sensex and Nifty, he said.