Satyam heads towards disaster with Rs 8,000 cr fraud

Hyderabad, Jan 7 (PTI) In the country's biggest corporate
fraud involving about Rs 8,000 crore, iconic IT company Satyam
was Wednesday hurtling towards disaster following the shocking
disclosure of accounts fudging by its founder Ramalinga Raju,
who then quit as chairman - leaving an uncertain future for
the company and its 53,000 employees.

By the end of the day, the fourth largest IT company lost
a staggering Rs 10,000 crore in market capitalisation as
investors reacted sharply and dumped shares, pushing down the
scrip by 78 percent to Rs 39.95 at BSE. The NYSE-listed firm
could also face regulator action in the US.

The government, regulator SEBI and the industry reacted
with shock and anguish over the turn of events that could
tarnish India's corporate and raise vital issue like ethics,
corporate governance and accounting and business practices.

Acting in tandem, Corporate Affairs Ministry and SEBI
announced that the episode would be probed and action taken
against the perpetrators of the fraud that entails inflating
profits and creating fictitious assets.

"I am now prepared to subject myself to the laws of the
land and face consequences thereof," Raju said in a letter to
SEBI and the Board of Directors, while giving details of how
the profits were inflated over the years and his failed
attempts to "fill the fictitious assets with real ones."

The Maytas firms, although promoted by his family, proved
to be his nemesis, with Raju saying: "The aborted Maytas
acquisition deal was the last attempt to fill the fictitious
assets with real ones... But that was not to be. What followed
in the last seven days is common knowledge."

While the government said the entire issue would be
referred to the Serious Fraud Investigation Office, SEBI
described it as an event of "horrifying magnitude."

"It was like riding a tiger not knowing how to get off
without being eaten," said Raju.

As a first step, SEBI Wednesday ordered an investigation
into affairs relating to buying, selling or dealing in shares
of Satyam to ascertain if any regulatory provision was
violated. Besides, it ordered inspection of Satyam Computer
(books).

Giving details of the 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)."

It also carries "an accrued interest of Rs 376 crore which
is non-existent, understated liability of Rs 1230 crore on
account of funds arranged by me, overstated debtors position
of Rs 490 crore (as against Rs 2651 crore in the books."

The USD 2-billion Satyam also reported a revenue of Rs
2700 crore for the September quarter and an operating margin
of Rs 649 crore (24 per cent of revenue) as against the actual
revenue of Rs 2112 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 Rs 588 crore in Q2 alone," Raju said, adding that the
gap in the Balance Sheet has arisen purely on account of
inflated profits over a period of last several years.

Satyam, meanwhile, said Board member Ram Mynampati has
been appointed interim CEO. "We are obviously shocked..
immediate priorities are to protect interest of shareholders,
protect the careers and security of its approximately 53,000
associates..," Satyam said in a statement.

A shocked industry called for deeper regulation. "This
fraud on the investors and employees... shows a systemic
breakdown in audit and board oversight... questions will need
to be asked," FICCI President Rajeev Chandrasekhar said.

FICCI and CII, however, said the Satyam episode should not
be seen as a blot on all the Indian firms.

Corporate Affairs Minister Prem Chand Gupta said stern
action would be taken under the law. PTI