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Satyam Scam Rocks Outsourcing Industry What was Satyam Before this Fraud? Mr. Raju and B. Ramalinga Raju, were the founders of Satyam Computer . Satyam was country's fourth largest IT company - after TCS, Infosys and Wipro and ahead of HCL. Satyam share price was Rs. 139.15. Satyam listed on the New York Stock Exchange, and boasted 185 Fortune 500 companies on its client list . • It had 53,000 employees - that's equal to the combined number of employees of Tata Steel and Tata Motors (30,000 and 23,000 respectively). The company's clients include multinationals such as Nestle, General Motors (GM), and General Electric (GE). Satyam had top-notch clients and was acknowledged as one of the three best employers in India by both Hewitt (HEW) and Mercer (MERC), the international human resources firms. . But in September, the World Bank banned Satyam from doing any of its work after it found Satyam employees had hacked into its system and gained access to sensitive information. It also did not renew their five-year contract. Satyam denied any wrongdoing. SATYAM Meaning TRUTH. Now, Satyam :- A Rs. 7000 cr LIE. On the Morning of 7 January 2009, Ramalingam Raju, the chairman of troubled Indian IT outsourcing company Satyam Computer Services (SAY), sent a startling letter to his board and the Securities & Exchange Board of India (SEBI). Raju acknowledged :- His culpability in hiding news that he had inflated the amount of cash on the balance sheet of India's fourth-largest IT company by nearly $1 billion; Incurring a liability of $253 million on funds arranged by him personally;& Overstating Satyam's September 2008 quarterly revenues by 76% and profits by 97%. After, submitting his resignation Raju ended his letter by apologizing for his inability to close what began as a "marginal gap between operating profits and the one reflected in the books of accounts" but grew unmanageable. Background of the Fraud Case Maytas Infra Ltd., Company owned by Two sons of Raju were investing in the real estate business and recently their real estate business was not in good shape. Raju started using the manpower and other resources for the Satyam Company for the welfare of his sons’ real estate business. Four main shareholders of Satyam Company were horrified by the changing behavior of Raju. With Sat yam's management focused elsewhere, business suffered. Clients complained about lack of attention, and many professional managers began to leave. Before the shocking confession from Raju, there was a long list of reported suitors for Satyam. They included HCL Technologies, Wipro, IBM (IBM), Hewlett-Packard (HPQ), Larsen & Toubro InfoTech, Cognizant (CTSH), Cap Gemini (CAPP.PA), and even private equity players KKR and TPG. • Ramalinga Raju on Dec. 16 proposed that Satyam would buy a 31 percent stake in Maytas Infra from his family, and an additional 20 percent from minority shareholders, as well as all of Maytas Properties, for $1.6 billion. Satyam ADR’s lost 50% of their value over night. Raju was forced to reverse his decision under the shareholder’s pressure. But what was widely seen as a move by Raju to bail out his sons was actually aimed at covering Sat yam's tracks through fictitious cash transfers. December also brought news of pending litigation by a former client, online mobile- payments service Upaid Systems ,which filed a case of intellectual fraud and forgery against Satyam in 2007; a Texas court is scheduled to conduct a hearing on the case Jan. 7. What triggered the wrongdoing confession was investment banker DSP Merrill Lynch's letter to the company (followed by another to Sebi this morning) terminating its 10-day-old agreement with Satyam to advise it on strategic options because of ``material accounting irregularities”. ( One day before confession) Impact of the Confession Satyam had become "India's Enron," said CLSA India analyst Bhavtosh Vajpayee, calling the case "an accounting fraud beyond imagination [and] an embarrassing and shocking episode in Indian corporate governance." Damaged India's reputation as a reliable provider of IT services. Indian rivals will now come under greater scrutiny by regulators, investors, and customers. Tech Mahindra made a public statement that it would not be interested in acquiring Satyam "in the current environment. Price waterhouse cooper, sat yam s official auditors are under scrutiny. Raju family’s holding in Satyam falls to 3.64%. • Infosys, Tata Consultancy Services, Wipro, Accenture, and IBM could benefit from $500 to $700 million in business from Satyam over the next six months if the company flounders. Satyam Computer crashed by Rs 139.15 or 77.69 per cent to close at Rs 39.95, after the Chairman announced the company had falsified accounts and assets for several years. Bse Fell 700 points because of this. The Sensex, which had gained over 688 points in the last four sessions of 2009, tumbled below the crucial 10,000 point level, losing 749.05 points to reach 9,586.88. It touched the day's low of 9,510.15 and a high of 10,469.72 points, showing a wide fluctuation of nearly 960 points. The declining Sensex recorded the biggest single-day loss in the past two months, after Satyam Computers Services, the country's fourth-largest software developer, plunged around 80 per cent, the highest since getting listed in 1992. •The 50-share National Stock Exchange index Nifty tumbled by 192.40 points at 2,920.40, after hitting the day's low of 2,888.20 points during the day. The timing of what is being called `India's Enron' could not have come at a worse time - just when the stock market was showing signs of responding positively to the Centre and RBI's moves to stimulate the economy through interest rate cuts, duty reductions and accelerated government spending. A day after the sensex crossed the 10,000-mark, it plunged by 749 points, wiping out almost Rs 1.3 lakh crore (or trillion) of market capitalization. Satyam Stock Chart OPEN PREVIOUS CLOSE -- 38.85 DAY HIGH DAY LOW -- -- 52 WEEK HIGH 52 WEEK LOW 05/30/08 - 544.00 01/9/09 - 11.50 MARKET CAP AVERAGE VOLUME 3 mo 26.2B 42.5M DILUTED EPS TTM SHARES OUTSTANDING 29.94 673.9M EX-DATE P/E TTM 10/29/08 1.3x DIVIDEND DIVIDEND YIELD 7.00 18.02% K = Thousands M = Millions B = Billions Actions Taken Chartered accountants body ICAI constituted a six-member special committee to look into the auditing of crisis-hit Satyam Computer and will submit its auditing report on February, 11. The special committee will headed by ICAI Vice-President Uttam Prakash Aggarwal . ICAI council members – S L Dogra, Amarjeet Chopra; Subodh Aggarwal ; Akshay Gupta ;& K R Maheshwari, a banker and chartered accountant. • Government asked the Serious Frauds Investigation Office (SFIO)-- a body set up to crack complex white collar crimes-- to probe the financial irregularities in Satyam Computer Services and report its findings in three months. This decision to refer Satyam to SFIO is based on the recommendation of the Registrar of Companies (RoC) in Hyderabad, who inspected the books of Satyam which were being fudged for the past 7 years. Raju was arrested on charges of cheating, fraud and and other criminal charges under various sections of Indian Penal Code (IPC). The Securities and Exchange Board of India (SEBI) officials came to Hyderabad to investigate the entire scam, but they could not do so as Raju was in the custody of CID. The former chief executive officer (CEO) of Satyam Computers, Raju and his younger brother Rama Raju were remanded to judicial custody by sixth additional Metropolitan magistrate for 14 days (ie till January 23) and both were shifted to Chanchalguda Central Jail near the city. Satyam's New Board Government of India announced a new board for Satyam. Three “eminent persons” were selected to serve on Satyam’s board, the minimum number of directors required under Indian law. The three are :- Deepak Parekh, the chairman of the Housing Development Finance Corp; Kiran Karnik, a former head of the National Association of Software and Services Companies;& C. Achuthan, a lawyer and former member of the Securities and Exchange Board of India, the country’s market regulator. T.N. MANOHARAN IS THE NEW CHAIRMAN ( Former President of ICAI). Amarchand & Mangaldas, Suresh A Shroff and Co have been appointed legal advisers to Satyam board. Where as Chartered accountants Brahmayya and Co of Chennai have been named internal auditors with immediate effect. Satyam’s New Boards Main Area’s of Concern "The most important issue is funding.... I do think that if we can tie up some funding then it will give great comfort to the employees and to the customers...," Karnik told a TV channel Deepak Parekh, a senior banker and Satyam board member, said it had Rs 17 billion (USD 348 million) in receivables and may not need new funding if the money came in on time. Satyam board can also think for loans, if required. Also, to arrange for enough money to support the salaries of the existing employees. How to keep the client’s intact and keep the business running. Satyam Board Announces Key Actions to help cover Satyam is in the final stages of arranging additional funding operational expenses, including salaries and vendor payments, through March. The Board announced that the company's fixed assets, including all campuses it owns, are free of encumbrance, and that collections from receivables have been robust. The Board and leadership team discussed ways to expedite collections due from customers, and to also execute prudent cost-optimization measures. Also, the Board announced that it has narrowed its list of candidates for chief executive officer and chief financial officer to three each, and will announce appointments to these positions next week. On customer Level , Satyam Board members have spoken and assured the customers. • On the employee front, Satyam leaders have increased and enhanced interactions with Associates at all levels to understand their concerns and update them about developments. Associate attrition also remains well under control. Recently, the Board held a conference call with Satyam's global business leaders globally to understand field-level realities. The Board will also reach out to associates all over the world through a video that will be webcast today and be made available on http://www.satyam.com/ shortly thereafter. Recent Developments It has been said that companies employees have been inflated in the books. Actual Employees of Satyam are 40,000 which were shown as 53,000. Raju, was signing off 20 crore rs of the company in the name of fictitious employees. L & T stake in Satyam have been increased to 12%. Raju admits of diverting funds to Mayta s properties and Maytas Infra. Two pricewaterhouse Coopers officials have been arrested in this fraud case. Raju s jail custody has been extended till 31 st Jan. Satyam 3rd chief financial officer has been arrested. Satyam School Poems Raju Raju sat on the wall Raju Raju had a great fall Balance sheet died Shareholders cried Raju Raju made a fraud __________________ What's considered as enough money... Just a lil' bit more.... “In this market, the person who makes money will be he who knows when to do nothing."
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