Raju quits Satyam; admits to financial wrong-doings

Hyderabad/Mumbai, Jan 7 (PTI) India's IT major Satyam
Computer Wednesday plunged into a deep crisis, as B Ramalinga
Raju resigned as its Chairman after admitting to major
financial wrong-doings and saying his last-ditch efforts to
fill the "fictitious assets with real ones" through Maytas
acquisition failed.

The beleaguered IT giant, already under scanner over the
aborted acquisition of firms promoted by the Chairman's
family, received a rude shock days ahead of its January 10
board meeting, with Raju stepping down along with his brother
and Managing Director B Rama Raju.

"It was like riding a tiger, not knowing how to get off
without being eaten," Ramalinga Raju said in a letter to
Satyam's board of directors, wherein he listed major financial
wrong-doings over the years to inflate the profits.

Listed at New York Stock Exchange, the company could face
regulatory action in the US, analysts said.

While Raju recommended DSP Merrill Lynch be entrusted the
task of "quickly exploring some merger opportunities," the
company informed the stock exchanges that the investment
banker has terminated its engagement with Satyam.

Noting that every attempt to eliminate gaps in balance
sheet, purely on account of inflated profits over several
years, failed, Raju said: "I am now prepared to subject myself
to the laws of the land and face consequences thereof."

Low percentage of promoter equity in the company, where
four independent directors resigned in the last two weeks over
the acquisition fiasco, could lead to a takeover and expose
the gap, he said in the letter, also sent to regulator
Securities and Exchange Board of India (SEBI). The promoters'
share in Satyam has now dipped to just over 3 percent that too
is pledged with lenders.

Shares of Satyam plunged by over 40 percent immediately
after the announcement of resignations, necessitating an
overhaul of the Board and management.

Raju will continue as Chairman till the Board finds a
replacement, even as speculation was rife that Satyam
President Ram Mynampati would take over as Chairman.

Rama Raju would also continue as Managing Director, but
only till the time the Board is expanded.

Ramalinga Raju requested the Board to "hold together" to
take some important steps, while hoping that one of the Board
members T R Prasad was "well-placed to mobilise support from
the government at this crucial time."

Satyam is the country's fourth largest IT firm and has
has over 51,000 employees.

Giving details of the financial irregularities, Raju said
the company's balance sheet as of September 30 carries
"inflated (non-existent) cash and bank balances of Rs 5,040
crore (as against Rs 5,361 crore reflected in the books."

The balance sheet also carries "an accrued interest of Rs
376 crore which is non-existent, an understated liability of
Rs 1230 crore on account of funds arranged by me (Raju), an
overstated debtors position of Rs 490 crore (as against Rs
2651 crore reflected in the books," Raju said.
He further said that Satyam reported a revenue of Rs 2700
crore for the September quarter and an operating margin of Rs
649 crore (24 percent of revenue) as against the actual
revenue of Rs 2112 crore and an actual operating margin of Rs
61 crore (3 percent of revenue).
"This has resulted in artificial cash and bank balances
going up Rs 588 crore in Q2 alone," Raju said.

"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," Raju further said.

"It has attained unmanageable proportions as the size of
the company operations grew significantly... 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," he
said.

"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," he said.

Raju, however, claimed that neither he, nor 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.
Raju further said he or the company's MD did not take
"even one rupee/dollar from the company and have not benefited
in financial terms on account of the inflated results." PTI