Satyam Computer Services was thrown into disarray yesterday as Chairman Ramalinga Raju, in a letter sent to Satyam’s Board as well as the market regulators, admitted to cooking up the books as part of a massive fraud, tentatively pegged at close to Rs.7,000 crore.
Satyam, already reeling under the impact of the aborted Maytas deal and corporate governance issues, had hoped to resolve these problems in its board meeting on January 10. Initially, like many others, I suspected the letter to be a hoax, but as time went by and there was no denial or rebuttal, the harsh reality about one of corporate India’s biggest frauds began to sink in.
The stock of course, nosedived and fell 77.51%, sending the indices into a tailspin,with the Sensex down 749.05 points (-7.25%), it’s fourth biggest fall in the past decade. The NSE moved swiftly, removing Satyam from the Nifty 50 as well as the S&P CNX 500 with effect from January 12, 2009.
Raju said the company’s balance sheet had inflated (non-existent) cash and bank balances of Rs.5,040 crore (as against Rs.5,361 crore reflected in the books), an accrued interest of Rs.376 crore which is non-existent, an understated liability of Rs.1,230 crore on account of funds arranged by him, an overstated debtors position of Rs.490 crore (as against Rs.2,651 crore reflected in the books). He also mentioned that Satyam reported a revenue of Rs.2,700 crore for the September quarter and an operating margin of Rs.649 crore (24% of revenue) as against the actual revenue of Rs.2,112 crore and an actual operating margin of Rs.61 crore (3% of revenue).
It is ridiculous to imagine a company like Satyam having an operating margin of just 3%. Rather than showing non-existent revenue and assets, he actually siphoned off funds for other ventures and when these failed, he was left with no option but to make the fraud public. The other reason: After the aborted Maytas deal, he had given Merrill Lynch the mandate of scouting around for a potential strategic partner / buyer, but they didn’t like what they saw, and when they refused to play along (pdf), Raju was well and truly screwed.
Lastly, guess who are the auditors of the company ? Yes, none other than PwC, who have a history of being associated with such shady deals in the past as well, like the one at Global Trust Bank among others.