Wednesday, January 07, 2009

Satyam: Raju ban gaya gentleman?

In a scene straight out of investor hell and mimicking the Bernie Madoff scandal, Ramalinga Raju of the famed Satyam Computer Services tenders his resignation admitting years of fraud.

The chronology of events:

1) Satyam grows from a humble beginning to one of the largest IT companies in India with global clients

2) Satyam s becomes a darling of the masses through the investor bull runs: Wins awards of corporate governance and appoints a impressive list of independent directors

3) During the great fall of 2008, Satyam announces that it wants to use the cash in its books to buy out two promoter owned companies at valuations that are detrimental to its shareholders. ADR sinks

4) World Bank bans Satyam for 8 years for alleged malpractices. Satyam demands apology.

5) Promoter share holding in the company fall to precipitous levels (sub 3.5%), Independent Directors resign. There is talk of a merger.

6) In a shocking move, Ramalinga Raju announced that he has cooked up the books for > 6,000 Cr ($1.2 Bn) by overstating cash, receivables. He has been doing this consistently to tide over poor margins in his core operating business. Stock tanks 80%

Satyam? The name is misleading.

There is more to meet the eye tho’. According to the September disclosures promoters held 8.6% of the company (which had remained stable last 3-4 quarters), media reports suggest that this fell to sub 4%. There were definitely margin calls on the company. What was the additional funding used for? Raju claims that the funding was used to tide over operating problems of the company (he quotes a figure of 1200 Cr).

PWC was the accounting firm and there is an ADR. No one caught this, that is possible (think Enron), but what is intriguing is the need for Raju to come out by himself. Was he trying to protect his sons and their companies by laying the entire blame on himself? Most likely he hand was forced to disclose.

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