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Raju also acknowledged that neither he nor the managing director took have benefited in financial terms on account of the inflated results. He confessed that none of the board members had any knowledge of the situation in which the company is placed. <ref> http://www.bloomberg.com/apps/news?pid=20601087&sid=aQGbT39V3pZE&refer=home</ref> <ref name="Letter from Raju to SEBI and Stock Exchange accepting the fraud">{{cite web|url=http://economictimes.indiatimes.com/photo.cms?msid=3946287|title=Letter from Raju to SEBI and Stock Exchange accepting the fraud|date=01-07-2009|publisher=Economic times|accessdate=2009-01-07}}</ref>
Raju also acknowledged that neither he nor the managing director took have benefited in financial terms on account of the inflated results. He confessed that none of the board members had any knowledge of the situation in which the company is placed. <ref> http://www.bloomberg.com/apps/news?pid=20601087&sid=aQGbT39V3pZE&refer=home</ref> <ref name="Letter from Raju to SEBI and Stock Exchange accepting the fraud">{{cite web|url=http://economictimes.indiatimes.com/photo.cms?msid=3946287|title=Letter from Raju to SEBI and Stock Exchange accepting the fraud|date=01-07-2009|publisher=Economic times|accessdate=2009-01-07}}</ref>




NEW DELHI – The chairman of India's Satyam Computer Services Ltd. quit Wednesday after admitting the company's profits had been doctored for several years, shaking faith in the country's corporate giants as shares of the software services provider plunged nearly 80 percent.

The company's balance sheet — riddled with "fictitious" assets and "non existent" cash — contained a $1 billion hole that could no longer be concealed after a deal intended to save the struggling company was scuppered, Chairman B. Ramalinga Raju said in a letter to the board.

"Every attempt made to eliminate the gap failed," said Raju, 53. "It was like riding a tiger, not knowing how to get off without being eaten."

B. Rama Raju, managing director of Satyam Computer and the chairman's brother, also quit.

News of the fraud dragged down the benchmark Sensex stock index 7.3 percent to 9,586.88 with Satyam's shares plummeting nearly 78 percent to 40 rupees. The accounting scandal raises questions about the quality of corporate governance in India and is likely to reverberate around the region.

Satyam, which means "truth" in India's ancient Sanskrit language, had "inflated profits over a period of (the) last several years," Raju said in his letter, which was released to the Bombay Stock Exchange.

For the July-September quarter alone, operating profit of $133.4 million had been overstated by almost 11 times the actual result.

Rajeev Sampat, an independent analyst, said the amount and nature of the fraud had shocked investors.

"It is one of the biggest frauds the Indian capital market has seen. People have been taken by surprise by the gravity of the event," he said. "After overstating profit and understating debt, the company's net worth is zero."

Satyam said in a statement that it was "shocked by the contents of the letter" but the company would rally to find a way forward.

Raju said that none of the other board members had any knowledge of the company's real financial situation and apologized to all stakeholders in his letter, claiming that he had not benefitted from the doctored results.

"Neither me, nor the managing director took even one rupee/dollar from the company and have not benefited in financial terms on account of the inflated results," he said.

The son of a grape farmer in India's southern Andhra Pradesh state, Raju founded Satyam in 1987 and over the last two decades the company became India's fourth largest software services company. A key player in the Indian outsourcing industry, the company is listed on the New York Stock Exchange.

After getting a business degree from Ohio University, Raju first started a weaving mill and then ventured into real estate before diversifying into the software services industry.

The financial troubles at Hyderabad-based Satyam started becoming public last month when outraged investors forced the company to call off a $1.6 billion acquisition of two construction firms both partly owned by Satyam's founders, including Raju and his family.

Compounding Satyam's problems, the World Bank last month barred the company from receiving direct contracts from the bank for eight years for what the lender said were inappropriate business practices.

The Securities and Exchange Board of India, the market regulator, said it was investigating.

"We have to go beyond this letter and find out what actually has happened," SEBI chief C.B. Bhave told reporters. "This is an issue which has very serious implications. It involves the Companies Act and the violation of the listing agreement with SEBI. It also raises the issue of authenticity of accounts that have been audited and certified by the auditors."


Acknowledging the facts, Satyam's official website says "We are obviously shocked by the contents of the letter. The senior leaders of Satyam stand united in their commitment to customers, associates, suppliers and all shareholders. We have gathered together at Hyderabad to strategize the way forward in light of this startling revelation” said Mr. Ram Mynampati, Interim CEO (pending ratification by the Board) and Member of the Board, who has been mandated by the Board to steer the company through this crisis."
Acknowledging the facts, Satyam's official website says "We are obviously shocked by the contents of the letter. The senior leaders of Satyam stand united in their commitment to customers, associates, suppliers and all shareholders. We have gathered together at Hyderabad to strategize the way forward in light of this startling revelation” said Mr. Ram Mynampati, Interim CEO (pending ratification by the Board) and Member of the Board, who has been mandated by the Board to steer the company through this crisis."

Revision as of 14:55, 7 January 2009

Satyam Computer Services Ltd.
Company typePublic (NYSE: SAY)
IndustryInformation Technology
Founded1987
Headquarters
Hyderabad, Andhra Pradesh
,
India
Key people
Ramalinga Raju-now resigned [1] , Founder
Rama Raju, Chairman
RevenueIncrease 2.1 billion USD (2007)
Number of employees
52,865* (As of September 30, 2008)
Websitesatyam.com/
Satyam Technology Center at Bahadurpally,Hyderabad
Satyam Development Center
Eco-Friendly campus of Satyam, Hyderabad
Satyam Chennai Family at Satyamotsav-the annual cultural show

Satyam Computer Services Ltd. is a consulting and information technology services company based in Hyderabad, India.

Overview

Satyam Computer Services Ltd. was founded by B.Ramalinga Raju in 1987, (;Satyam means "truth" in Sanskrit. The company offers a variety of information technology (IT) services spanning various industry sectors, and is listed on the New York Stock Exchange and Euronext.

Satyam's network covers 66 countries across six continents. The company employs 52,000 IT professionals across development centers in India, the United States, the United Kingdom, the United Arab Emirates, Canada, Hungary, Singapore, Malaysia, China, Japan, Egypt and Australia. It serves over 654 global companies, 185 of which are Fortune 500 corporations. Satyam has strategic technology and marketing alliances with over 50 companies. Apart from Hyderabad, it has development centers in India at Bangalore, Chennai, Pune, Mumbai, Nagpur, Delhi, Kolkata, Bhubaneswar, and Visakhapatnam.

In October 2007, Satyam announced a collaboration with Cisco to enhance Health Management Solutions. In November 2007, Satyam is announced as the official Information Technology Services Provider for the FIFA World Cups to be held in 2010 and 2014. Satyam partnered with arvato systems to provide innovative solutions for medium-sized enterprise market in Germany, Austria and Switzerland. Satyam has been ranked consistently in the top Employers list released by surveys done by leading groups such as Business India. The company has massive expansion plans to penetrate across the globe especially Europe. Revenues for 2008 have crossed $2 billion. On Jan 21, 2008 Satyam announced the acquisition of a Chicago-based boutique consulting firm Bridge Strategy Group. This is yet another acquisition by Satyam after Knowledge Dynamics and Citisoft.

Industries

  • Aerospace and Defense
  • Automotive
  • Banking
  • Chemicals
  • Education
  • Energy and Utilities
  • Financial Services
  • Healthcare
  • Industrial Equipment
  • Insurance
  • Infrastructure
  • Life Sciences
  • Manufacturing
  • Media and Entertainment
  • Sports
  • Public Services
  • Retail and CPG
  • Semiconductor
  • Telecom
  • Travel and Logistics

Services

  • Services
  • Application Services
  • BI & PM
  • Business Process Outsourcing [2]
  • Business Value Enhancement
  • Consulting and Enterprise Solutions
  • Infrastructure Management Services ( Including Information Security, Application Security & Compliance )
  • Integrated Engineering Solutions
  • MES and LIMS
  • Oracle Solutions
  • Product and Application Testing
  • SAP Solutions
  • Six Sigma Consulting
  • Supplier Relationship Management
  • Supply Chain Management
  • Independent Testing Practice

Corporate Governance

Satyam was the 2008 winner of the coveted Golden Peacock Award for Corporate Governance[2], despite concerns raised by independent board directors[3]. In 2008 the company attempted to acquire two infrastructure companies - Maytas infrastructure and Maytas properties for $1.6 billion. Both companies are owned by Satyam CEO Ramalinga Raju's sons. This eventually led to the probing of the deal by the government[4], a veiled criticism by the vice president of India[5] and Satyam clients re-evaluating their relationship [6]with the company. Satyam investors lost about INR 3,400 crore in the panic selling. The USD $1.6 billion (INR 8,000 crore) acquisition was met with skepticism all around as Satyam's shares fell 55% on the New York Stock Exchange as well[7].

Considering that none of the Independent Board of Directors questioned the deals, investors are expecting a complete revamp of the Board. In line with this three of Board of Directors resigned on Monday 29th Dec 2008 [8].

The World Bank has banned Satyam to do business with it for a span of 8 years due to data theft and paying bribes to the World Bank's staffs[9]. The World Bank in its own statement has denied allegations of "data theft/ malicious attacks", but confirmed the bribery and improper invoicing allegations[10].

UK mobile payments company Upaid Systems is suing Satyam for over 1 Billion dollars on charges of fraud, forgery and breach of contract[11].

Accounting Scandal of 2009

On morning of 7 January 2009 at 10:53AM (IST), Satyam Computer Services Ltd's Chairman Mr.Ramalinga Raju resigned after notifying its board members and SEBI that he falsified accounts and assets.[12][13] The shares of the IT company were down by more than 82% touching low of Rs 30.70.

Immediately following the news, DSP Merrill Lynch (Now with Bank of America) terminated its engagement with the company as Credit Suisse suspended its coverage of Satyam.

Satyam's auditing firm PricewaterhouseCoopers will be scrutinized for complicity in this scandal[14][15][16][17].

The truth came to fore when Mr.Raju sent a letter to the board members, copying it to SEBI. Letter stated that Satyam’s balance sheet as on Sep 30, 2008, carried an inflated (non-existent) cash and bank balances of Rs 5,040 crore (as against Rs 5,361 reflected in the books). Further, it carried an accrued interest of Rs 376 crore which was non-existent. An understated liability of Rs 1,230 crore on account of funds was arranged by himself. An over stated debtors position of Rs 490 crore (as against Rs 2,651 crore in the books).

For the second quarter ended Sep 30, 2008, the company reported a revenue of Rs 2,700 crore and an operating margin of Rs 649 crore (24% of revenues) as against the actual revenues of Rs 2,112 crore and an actual operating margin of Rs 61 crore (3% of revenues). This had resulted in artificial cash and bank balances going up by Rs 588 crore in the second quarter alone. The gap in the balance sheet had arisen purely on account of inflated profits over a period of last several years (limited only to Satyam standalone, books of subsidiaries were reflecting true performance).

As per Raju, "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. It has attained unmanageable proportions as the size of company operations grew significantly (annualised revenue run rate of Rs 11,276 crore in the September quarter of 2008 and official reserves of Rs 8,392 crore).

As the promoters held a small percentage of equity, the concern was that poor performance would result in a takeover, thereby exposing the gap. The aborted Maytas acquisition deal was the last attempt to fill the fictitious assets with real ones.

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

Raju had made a task force comprising its members Subu D, TR Anand, Keshab Panda and Virendra Agarwal and AS Murthy, Hari T and Murli V in the last few days before letting news out, to address the situation arising out of the failed Maytas acquisition attempt.

Ram Mynampati was made the Chairman of this task force to immediately address some of the operational matters on hand. Merrill Lynch was entrusted with the task of exploring some merger opportunities, which it later walked out cancelling the agreement.

Raju says that neither he nor the managing director sold any shares in the last eight years except a small proportion sold for philanthropic purposes.

A net amount of Rs 1,230 crore was arranged to Satyam (not reflected in the books) to keep operations going by resorting to pledging all the promoter shares and raising funds from known sources by giving all kinds of assurances. Significant dividend payments, acquisitions, capital expenditure to provide growth did not help matters. Every attempt was made to keep the wheel moving and to ensure prompt payment of salaries to the associates. The last straw was the selling of most of the pledged shares by the lenders on account of margin triggers.

Raju also acknowledged that neither he nor the managing director took have benefited in financial terms on account of the inflated results. He confessed that none of the board members had any knowledge of the situation in which the company is placed. [18] [19]



NEW DELHI – The chairman of India's Satyam Computer Services Ltd. quit Wednesday after admitting the company's profits had been doctored for several years, shaking faith in the country's corporate giants as shares of the software services provider plunged nearly 80 percent.

The company's balance sheet — riddled with "fictitious" assets and "non existent" cash — contained a $1 billion hole that could no longer be concealed after a deal intended to save the struggling company was scuppered, Chairman B. Ramalinga Raju said in a letter to the board.

"Every attempt made to eliminate the gap failed," said Raju, 53. "It was like riding a tiger, not knowing how to get off without being eaten."

B. Rama Raju, managing director of Satyam Computer and the chairman's brother, also quit.

News of the fraud dragged down the benchmark Sensex stock index 7.3 percent to 9,586.88 with Satyam's shares plummeting nearly 78 percent to 40 rupees. The accounting scandal raises questions about the quality of corporate governance in India and is likely to reverberate around the region.

Satyam, which means "truth" in India's ancient Sanskrit language, had "inflated profits over a period of (the) last several years," Raju said in his letter, which was released to the Bombay Stock Exchange.

For the July-September quarter alone, operating profit of $133.4 million had been overstated by almost 11 times the actual result.

Rajeev Sampat, an independent analyst, said the amount and nature of the fraud had shocked investors.

"It is one of the biggest frauds the Indian capital market has seen. People have been taken by surprise by the gravity of the event," he said. "After overstating profit and understating debt, the company's net worth is zero."

Satyam said in a statement that it was "shocked by the contents of the letter" but the company would rally to find a way forward.

Raju said that none of the other board members had any knowledge of the company's real financial situation and apologized to all stakeholders in his letter, claiming that he had not benefitted from the doctored results.

"Neither me, nor the managing director took even one rupee/dollar from the company and have not benefited in financial terms on account of the inflated results," he said.

The son of a grape farmer in India's southern Andhra Pradesh state, Raju founded Satyam in 1987 and over the last two decades the company became India's fourth largest software services company. A key player in the Indian outsourcing industry, the company is listed on the New York Stock Exchange.

After getting a business degree from Ohio University, Raju first started a weaving mill and then ventured into real estate before diversifying into the software services industry.

The financial troubles at Hyderabad-based Satyam started becoming public last month when outraged investors forced the company to call off a $1.6 billion acquisition of two construction firms both partly owned by Satyam's founders, including Raju and his family.

Compounding Satyam's problems, the World Bank last month barred the company from receiving direct contracts from the bank for eight years for what the lender said were inappropriate business practices.

The Securities and Exchange Board of India, the market regulator, said it was investigating.

"We have to go beyond this letter and find out what actually has happened," SEBI chief C.B. Bhave told reporters. "This is an issue which has very serious implications. It involves the Companies Act and the violation of the listing agreement with SEBI. It also raises the issue of authenticity of accounts that have been audited and certified by the auditors."

Acknowledging the facts, Satyam's official website says "We are obviously shocked by the contents of the letter. The senior leaders of Satyam stand united in their commitment to customers, associates, suppliers and all shareholders. We have gathered together at Hyderabad to strategize the way forward in light of this startling revelation” said Mr. Ram Mynampati, Interim CEO (pending ratification by the Board) and Member of the Board, who has been mandated by the Board to steer the company through this crisis."

References

  1. ^ [1]
  2. ^ http://www.goldenpeacockawards.com/GPA_RESULTS_ANNOUNCEMENT_2008.pdf
  3. ^ http://www.thehindubusinessline.com/2008/12/19/stories/2008121951600400.htm
  4. ^ http://timesofindia.indiatimes.com/Hyderabad/Centre_refers_Satyam_deal_to_ROC/articleshow/3864623.cms
  5. ^ http://www.hindu.com/2008/12/21/stories/2008122154521500.htm
  6. ^ http://www.business-standard.com/india/news/satyam-clients-likely-to-re-evaluate-contracts/00/12/343589/
  7. ^ http://profit.ndtv.com/2008/12/17224312/Satyam-investors-lose-Rs-3300.html
  8. ^ http://economictimes.indiatimes.com/Features/Satyam_Maytas_deal_called_off/Fourth_independent_director_resigns_from_Satyam/articleshow/3909517.cms
  9. ^ http://economictimes.indiatimes.com/Infotech/World_Bank_bans_Satyam_for_8_years/articleshow/3882667.cms
  10. ^ http://www.thehindubusinessline.com/2008/12/25/stories/2008122551661000.htm
  11. ^ http://economictimes.indiatimes.com/Infotech/Software/Old_client_files_forgery_lawsuit_against_Satyam/articleshow/3041117.cms
  12. ^ http://www.bseindia.com/xml-data/corpfiling/announcement/Satyam_Computer_Services_Ltd_070109.pdf
  13. ^ http://www.thehindubusinessline.com/businessline/blnus/05071265.htm
  14. ^ ICAI to seek explanation from Satyam’s auditor PwC
  15. ^ Satyam auditor says examining chairman's statement
  16. ^ What happens to PWC, The Auditor For Satyam?
  17. ^ Satyam: Auditors' body to pull up PwC ICAI to seek explanation from Satyam’s auditor PwC
  18. ^ http://www.bloomberg.com/apps/news?pid=20601087&sid=aQGbT39V3pZE&refer=home
  19. ^ "Letter from Raju to SEBI and Stock Exchange accepting the fraud". Economic times. 01-07-2009. Retrieved 2009-01-07. {{cite web}}: Check date values in: |date= (help)

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