In what promises to be India’s biggest corporate scandal till date, Mr. Ramalinga Raju, founder and chairman of Satyam Computers, one of India’s four premier IT companies, admitted of a fraud through a letter addressed to the board of the company. The controversial and seemingly absurd acquisition proposal of Mytas, an infrastructure company of Satyam promoters by Satyam computers a few weeks back suddenly started making sense once the letter by Mr. Raju to the board of the Satyam was out.
Here’s how the story unfolded...
Full Text of Mr. Raju’s letter to Satyam Board
Mr. Narayanmurthy reacts... It is important to remember that one Satyam does not make the entire Indian software industry. I believe it is an isolated case
ICAI, ICSI say they are working on the facts of the case... Will soon take action
Satyam to be thrown out of NIFTY, SENSEX?
The Fraud
There is Rs. 5040 Crores worth inflated cash and bank balance
Non-existent accrued interest of Rs. 376 Crores
Understated liability of Rs. 1230 Crores
Overstated debtor position of Rs. 490 Crores
For last quarter,
Overstated Revenues by Rs. 588 Crores and overstated operating profit by Rs. 588 Crores
Added together, it is a discrepancy of Rs. 7724 Crores on the face of it for a company having annual revenues of Rs. 10000 odd Crores, a gigantic fraud by Indian standards.
The After-effects
- Satyam Scrip on NSE, BSE crashed 77% to Rs. 40.25 on the news and the great story for a seemingly successful Indian IT company ended. Fingers were pointed, concerns were raised, complaints were filed and dreams were shattered. What happened at Satyam and why it happened will be contemplated by regulators and chewed by business media for days to come but I think it is time for some quick action on part of the regulators, corporate India and the government
- The event has left Satyam with virtually no board as most of the independent directors have resigned and promoters will be kicked out. The Acquirer or the government must appoint able directors quickly to ensure business sustainability
- There are about 53000 able employees of Satyam which need to be taken care of. They are at no fault for the current crisis at Satyam and still make Satyam a valuable enterprise
- Many customers of Satyam still expect to be serviced and in case of an unfortunate event of bankruptcy, the contracts should be sold to other Indian companies (By the government of course) so as to make sure that Indian IT story is not dented
- The auditors and their inability to verify even the cash balances of Satyam is a fact that concerns me. There should be higher accountability or responsibility on part of the auditors and those found guilty should be severely punished
- Other Indian IT companies should do all that they can to prevent their image from denting. This includes assuring customers and investors about sound corporate governance (If it exists that is) and introducing transparency and stringency in the disclosures
Finally, my first recession gives me my first big scam in India. The crisis times like these separate good companies from ordinary ones and expose ill-managed organizations. The crisis could dampen India’s image as a good investment destination. It could affect badly, the businesses of Indian IT, BPO, KPO firms. We should remember that the position India is in, as an emerging and promising market, we cannot afford such mistakes and this event should and hopefully will have enough impact to trigger India’s Sarbanes-Oxley so that such mismanagement can be prevented in the future
PS: The word 'Satyam' means 'The truth' in Sanskrit whereas 'Asatyam' means a lie.
