Satyam Computer Services chairman Ramalinga Raju has resigned after saying he falsified earnings and assets, prompting a collapse in the stock of India’s fourth-largest software-services provider.
Raju unsuccessfully tried to sell two companies to Satyam last month in a final attempt to plug 50.4 billion rupees ($US1.03 billion) of “fictitious” cash on the company’s balance sheet, he wrote in a letter to Hyderabad-based Satyam’s board today. Profits have been inflated for “several years,” he said.
Qantas, which has exposure to Satyam Computer Services, said its business risk from an information technology contract with the company is “manageable”.
“At this stage Qantas assesses any risk to business as manageable,” a Qantas spokesman said. “In the event that Satyam is unable to continue services, Qantas has the ability to activate alternative internal and external arrangement to enable the continuation of seamless services.”
Satyam, which means “truth” in Sanskrit, slumped a record 78% in Mumbai trading, dragging down India’s benchmark index, in a scandal that was described as “horrifying” by markets regulator C.B. Bhave.
Raju’s reign unravelled in the past month as shareholders blocked the asset purchases, a World Bank ban kept Satyam from bidding for orders and four directors quit.
“This is a black day for India, the software sector and corporate-governance claims,” Arun Kejriwal, founder of Kejriwal Research & Investment Services, said in Mumbai. “If at all there’s an event that could be the biggest setback for corporate India, it is this.”
Goldman Sachs, Citigroup, HSBC Holdings, and Credit Suisse Group suspended coverage of Satyam. The National Stock Exchange removed Satyam from its main Nifty index after the benchmark slumped 6.2%.
Satyam’s American depositary receipts fell $US8.42, or 90%, to 93 US cents in trading before the opening of the New York Stock Exchange. The shares were then halted by the exchange, which said it is evaluating the news.
‘Deep shock’
“We’re in a deep state of shock by what’s been announced and we’re fairly happy that we sold when we did,” said Greg Kuhnert, a fund manager at Investec Asset Management in London. “When we look at further investments in the country, we’ll have to get out a magnifying glass and really examine every bit very closely.”
Satyam maintains computer networks and provides outsourcing services for clients such as Citigroup, Nissan and Qantas Airways. The company employs about 53,000 people in Bangalore, Chennai and Hyderabad, and competes with Infosys Technologies, Tata Consultancy Services and Wipro.
“This quarter will be tumultuous for us,” interim Chief Executive Officer Ram Mynampati said in an e-mailed statement. “Rumors will abound and it would be fair to assume that competition will try to leverage it to their advantage.”
Infosys, India’s second-largest software exporter, called the incident “deplorable.”
Nonexistent Cash
Of Satyam’s reported cash and bank balances of 53.61 billion rupees on September 30, 50.4 billion rupees was nonexistent, Raju said in the letter sent to the Bombay Stock Exchange.
Satyam’s operating margin in the quarter ended September 30 was 3% of revenue, instead of the reported 24%, Raju said. The company had sales of 21 billion rupees, 22% less than the stated figure of 27 billion rupees.
Raju arranged 12.3 billion rupees “to keep operations going” at Satyam during the past two years by pledging the founders’ shares and raising funds from other sources, he said. Continued…
