Satyam Financial irregularities

Satyam’s chief B Ramalinga Raju resigned after a shocking revelation about financial irregularities in the Indian software major. It was a stunning news and first of its kind in Indian stock market.

In a letter to board of directors, SEBI and exchanges he revealed that as of September there exists an inflated cash (non-existent but shown in books) and bank balances of Rs 5040 crores. He admitted that fictitious assets were created to cover the improper balance sheet entries and the recent MAYTAS acquisition trial is also part of that.

He also mentioned that it has been happening for years and started off to cover a marginal gap between actual operating profit booked and that stated in the books few years ago. It means the profits are shown higher purposefully.  As there was a large difference between the actual profits and that stated in the balance sheet he decided to acquire MAYTAS to make the fictitious assets real; but the deal failed. Had it gone successfully he would have shown MAYTAS assets for the so called ‘great cash reserves’.

Satyam’s share price tumbled 78% in BSE after the news got out. It settled at Rs40 at the end of the trading. It last nearly 10,000 crores of its market capitalization. In the pre market trade of NYSE Satyam’s ADR s were traded down 91%.

SATYAM, a Sanskrit word, meaning truth, couldn’t stand against its name at all. It was a nightmare for investors who lost all most all their investments in a day. Mutual funds started dumping the stocks like any thing. Fidelity, a mutual fund major, has sold out its millions of holdings in the company.  Mutual funds may have seen the value of their combined holdings in Satyam Computer Services drop by about Rs 450 crore. More over the fund houses had lost more than Rs 283 crore while the company announced the proposed acquisition of Maytas Properties and Maytas Infra on 17 December 2008.

Ram Mynampati is acting as interim CEO. In a press meeting he said that Satyam Computer Services is committed to staff, clients and shareholders of clients and employees. Merrill Lynch will play its role to facilitate merger/acquisition. 

Mr Raju, it was a shock to the entire nation. Now who will trust the company? For that matter who will trust the other companies? If Auditors, regulators in India and USA could not find it how will a normal investor ever come to know?  FII s may think that there would be more skeletons in the cup board and may not dare investing. You betrayed the investors, employees. What will you say to the young entrepreneurs whom you were the role model?
 

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January 7, 2009 | Filed Under Market Outlook 

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