14 satyam scandal

8/6/2019 14 Satyam Scandal

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7/22/2011

In an announcement that sent shock waves across corporate India, Chairman of Satyam

Computors B Ramalinga Raju resigned from the board, admitting to India Inc's biggest

fraud.

Soon after, Satyam Managing Director and Ramalinga's brother B Rama Raju too followed

suit.

In a letter to the board of directors, Raju also admitted that the company's balance sheet

was inflated to Rs 5,361 crore at the end of September 2008 against the actual Rs 5,040

crore. There was also an accrued interest receipt of Rs 376 crore, which was non-

existent. The balance sheet also had an understated liability of Rs 1,230 crore on account

of funds arranged by Raju. The debtors position was also overstated by Rs 490 crore to

Rs 2,651 crore.

Raju also admitted that the September 2008 results were overstated at Rs 2,700 crore

with an operating margin of Rs 649 crore. Raju said the actual numbers were Rs 2,112

crore and the operating margin was much lower at Rs 61 crore. This resulted in an

artificial cash balance of Rs 588 crore. Raju also admitted that Satyam's profits were

inflated over several years. He said that what started as a marginal gap between actual

operating profit and the reported figures has attained unmanageable proportions as the

size of the company grew, and every attempt to eliminate the gap failed. He added, "It

was like riding a tiger, not knowing how to get off without being eaten." The Maytas deal

was the last attempt to fill the fictitious assets with real ones.

Raju also said Rs 1,230 crore was arranged to Satyam, which is not reflected in its books,

to keep Satyam's operations running. For this the promoter had to pledge the promoter

shares and raising funds from other sources.

B Rama Raju, managing director of the company will continue in the position till such

time the current board is expanded and the continuance is just to ensure enhancement of

the board over the next several days or as early as possible.


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Byrraju Ramalinga Raju was born on September16, 1954 to Byrraju Satyanarayana Raju

in Bhimavaram in Andhra Pradesh.

Aftert graduating in B.Com from Andhra Loyola College at Vijayawada and left Ramalinga

gained his MBA degree from the prestigious Ohio University in the US. And he even had

the opportunity to attend President course at Harvard. Ramalinga was honoured with a

Doctorate by Anna University Chennai in 2007 for his achievements.

Forbes had named him 40th richest man in 2007.

In 1999, Ramalinga was Ernst & Young Entrepreneur of the Year, next year, he was

named as Dataquest IT Man of the Year, in 2002 he won Asia Business Leader Award and

in 2007 he was named as Ernt & Young Entrepreneur of the Year.

Rajus wife is Nandini and they have two sons Teja Raju and Rama Raju and a daughter,

Deepti, who is married.

Ramalinga too has two brothers one brother Rama was the Manging Director and a

sister.

Ramalinga founded Satyam in 1987 after indulging in construction and textiles sectors,and rest as they is history.

Satyam Computers established by Ramalinga is considered as an icon among the IT

companies and at one point had over a billion dollar revenue.

During his student days in the US he foresaw the upcoming trend of outsourcing and the

future prominence of computers. He started an IT company with 20 employees and

bagged multitude of IT projects from US companies. Now the company has rapidly

developed and became a true multinational company with thousands of employees

spread over multiple countries.

The latest Maytas controversy and margin selling of his shares have created a furore and

controversy in business circles.


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Satyam Computers had on December 16, 2008, announced that it will acquire two

group firms - Maytas properties and Maytas Infra for $1.6 billion (about Rs 8,000 crore)

as part of its diversification strategy, a move that sparked a row over alleged violation of

corporate governance laws.

The Satyam board, including its five independent directors, had approved the founders

proposal to buy 51 per cent stake in Maytas Infrastructure and all of Maytas Properties,

owned by the family members of Satyam Chairman B Ramalinga Raju.

The decision of acquisition was, however, reversed 12 hours later after investors dumped

Satyams stock and threatened action against the management. Its scrip nosedived more

than 55 per cent on the US bourses.

The ministry of corporate affairs later ordered a probe into whether the company violated

any corporate governance laws while entering into such a deal involving share holders'

money.

Indias third-largest software services company has been under pressure after

institutional shareholders, especially overseas ones, forced it to reverse a decision to

invest almost Rs 8,000 crore in two promoter-owned companies mid-December. Four

independent directors resigned thereafter, after facing criticism for agreeing to a decisionthat was widely perceived as damaging to the companys interests.

Interestingly, the shocking move by Ramalinga comes ahead of January 10 board

meeting and has now pushed the company into deep crisis and has now paved the way

for immediate restructuring of the board and the management, market watchers.

Facing the threat of a hostile takeover by a domestic or overseas company, including

private equity firms, Satyam Computer Services management and some of its

institutional investors have been exploring a merger with another software company.

The company was reportedly in talks with Delhi-based HCL Technologies and Bangalore-

based MindTree. HCL, with whom discussions are on for a cash-less merger, seems to be

the front-runner, investment banking sources said.


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The companys share price has fallen 21.3 per cent since December 15, the day before

the crisis broke.

Shrugging off early gains, the Bombay Stock Exchange benchmark Sensex on Wednesday

tumbled over 340 points at noon to dip below the psychological 10,000-points level, onheavy selling by funds after reports of Satyam Computer Services chairman resigning.

At 1200 hrs, the Sensex, which opened higher by 133.79 points, fell back to record a

heavy loss of 340.19 points at 9,995.74 as the index-linked Satyam Computer plunged

by Rs 95.50, or 53.32 per cent, to Rs 83.60.

Selling pressure sparked after reports that Satyam Computer Services Chairman

Ramalinga Raju tendered his resignation, ahead of the crucial January-10 board meeting.

With the mounting selling pressure, the wide-base National Stock Exchange's index Nifty

dropped by 124.70 points at 2,988.10 at the same time.

14 satyam scandal

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