The Hindu Business Line : Rs 7,000-crore fraud

Stunning exit: Satyam's head office in Hyderabad. Mr B. Ramalinga Raju, Chairman ofSatyam Computer Services, bowed out of office on Wednesday. - Satish H

Our Bureau

Hyderabad, Jan. 7 In perhaps one of Corporate India’s worst unfolding chapters, Mr B. Ramalinga Raju, Founder-Chairman of the $2-billion Satyam Computer Services, dramatically stepped down on Wednesday admitting to faking financial figures of the company to the tune of Rs 7,136 crore, including Rs 5,040 crore of non-existent cash and bank balances.

The startling disclosure by Mr Raju, considered one of the poster boys of Indian IT, jolted the corporate world, investor community, Government and large pool of young professionals, pushing the fourth largest Indian IT company into a crisis, exposing it to acquisitions and leaving the future of 53,000 employees in balance.

On a day of fast moving developments, the Satyam scrip was slaughtered to a low of Rs 39. 95, down by 78 per cent, and several FIIs (which hold nearly 61 per cent) offloaded their shares. The market cap plummeted to Rs 2,705 crore from over Rs 12,000 crore on a single day.

Mr Ram Mynampati, President, was quickly made interim CEO to steer the troubled ship, while Mr Raju would continue till the new board was constituted on January 10.

Stunning his well wishers and investors, Mr Raju revealed the real motive behind the December 16 bid to acquire Maytas companies for $1.6 billion. It was to swap the fictitious cash reserves of Satyam built over years with the Maytas assets. Mr Raju thought the payments to Maytas could be delayed once the Satyam’s problem was solved.

But unprecedented investor outcry, media pressure and highly unfavourable economic conditions played spoil sport to Mr Raju’s plans, leading to his exit.

Fudged figures

Mr B. Ramalinga Raju

Mr Raju in his disclosure to the BSE admitted that the balance sheet for September 30, 2008, comprised faked and inflated figures of revenue, profit, interest and debt. The list includes Rs 5,040 crore of non-existent cash and bank balances, non-existent accrued interest, understated liability of Rs 1,230 crore on account of funds raised by Mr Raju and overstated debtors position of Rs 490 crore (as against Rs 2,651 crore).

“What started as a marginal gap between actual operating profit and the one reflected in the books continued to grow over the years. It has attained unmanageable proportions as the size of the company’s operations grew over the years,” Mr Raju explained.

One lie led to another. The problem further worsened as the company had to carry additional resources and assets to justify higher level of operations, leading to increased costs.

As things went out of hand, Mr Raju was forced to raise Rs 1,230 crore by pledging the family-owned shares to keep the operations going. His woes were compounded with dues in several crores to vendors, fleet operators and construction companies.

The offloading of the pledged shares by IL&FS Trust and others brought down the promoters’ stake from 8.65 per cent to a fragile 3.6 per cent. The build-up by FIIs and investors and buzzing marketing rumours of possible suitors, seemingly hastened the exit of the promoter. By the end of the day, Mr Raju was left facing charges from several sides. The Ministry of Corporate Affairs, the State Government and the market regulator, SEBI, were also disposed to probing the affairs of the company and his role as well as corporate governance issues. The city was also afloat with rumours about his whereabouts.

The company has been putting a brave front for the last 21 days, following the failed deal with Maytas that it will win back investor confidence. It even challenged World Bank, replied to Upaid case in US, but in the end Mr Raju bowed to pressures. An angry DSP Merrill Lynch which was given the task of suggesting measures to bail out also quit today.

Submission

Mr Raju argued that neither he nor the Managing Director (his brother Mr Rama Raju) and their spouses sold any shares in the last eight years. “Significant dividend payments, acquisitions, capital expenditure to provide for growth did not help. The last straw was the selling of most of the pledged shares by the lenders,” he said.

Mr C.B. Bhave, Chairman of SEBI, has described the Satyam revelation as an event of “horrifying magnitude”. “We are in touch with the Ministry of Company Affairs and at SEBI we will see what are the measures we can take,” he said.

Reports said both SEBI and MCA would depute special teams to Hyderabad to scrutinise the Satyam books.

Soon after taking over the reins, Mr Mynampati Ram dashed off a letter to 53,000 employees of the group, and said that veterans in the company formed a SWAT (an acronym for military term Special Weapons and Tactics unit) to handle the crisis.

Apologising to the staff and their families for the uncertainty and inconvenience, Mr Ram cautioned that the company might face rumours in the days to come and that the competition would try and leverage it to their advantage.

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