Satyam Dealing With ‘Unimaginable’ Crisis, CEO Says (Update1)
By Harichandan Arakali and Andrea Tan
Jan. 8 (Bloomberg) -- Satyam Computer Services Ltd., India’s fourth-largest software exporter, said it is dealing with a crisis of “unimaginable proportions” after its founder admitted to $1 billion of false accounting and quit the board.
Interim Chief Executive Officer Ram Mynampati said Satyam may have to restate earnings and he couldn’t be sure the company had enough cash for this month. “Our liquidity position is not very encouraging,” Mynampati told reporters in Hyderabad today.
India’s government, markets regulator and accountants group all said they’re investigating Satyam after chairman Ramalinga Raju said profits had been inflated for “several years.” The scandal described as “horrifying” by regulator C.B. Bhave rattled the stock market, sending the Sensex index tumbling 7.3 percent yesterday, the biggest drop in more than 10 weeks.
“It clearly raises question marks about the auditors involved, the board of directors and many things,” said David Chatterjee, a senior investment manager at Pictet Asset Management Ltd. in London, which sold its entire stake in Satyam last quarter. “What’s happened with Satyam is such a huge thing and will have a series of serious ramifications.”
Audited Statements
Mynampati said he wasn’t aware of the financial misconduct as he relied on statements audited by the local unit of New York- based PricewaterhouseCoopers LLP.
Satyam’s accounts were supported by “appropriate audit evidence,” and it wouldn’t be able to comment on the “alleged irregularities,” according to an e-mail from the accounting firm’s public relations adviser Edelman.
Ved Jain, president of the Institute of Chartered Accountants of India, said the group has written to regulator Securities & Exchange Board of India and the Registrar of Companies seeking information on Satyam and its accounts.
“There can be two possibilities: One, the auditor has been negligent. Second, is that he was aware and intentionally overlooked it,” Jain said. “Both ways, my act will be applicable. In the second, it can be a criminal case as well.”
Mynampati said the company’s remaining senior executives were evaluating the veracity of the disclosures made by Raju and couldn’t rule out pressing criminal charges against the founder.
‘Sustenance of Operations’
“The most immediate aim for us is the sustenance of our operations and that’s what we are focusing on,” he said. Mynampati, 51, has a postgraduate degree in computer science from California State University and joined Satyam in 1999, according to the company’s Web site.
Satyam tumbled a record 78 percent to 40.25 rupees in Mumbai trading yesterday. The Indian market is closed for a holiday today. The software provider’s American depositary receipts plunged 90 percent in early New York trading yesterday, prompting a halt by the New York Stock Exchange.
“Satyam will still continue to exist, though probably on a much smaller scale or even in a different form. One thing’s for sure, it won’t be an easy task,” said James Friedman, an analyst at Susquehanna International Group in New York who has suspended his rating on Satyam.
Telstra Corp., Australia’s largest telephone company, said Satyam’s disclosure will be a factor when it cuts two out of its four major information technology suppliers this year. Qantas Airways Ltd., Australia’s biggest airline, said it has a backup plan “in the event Satyam is unable to continue services.”
‘Strategic Alternatives’
Mynampati said the company’s three remaining board members, including himself, would meet as scheduled on Jan. 10 and consider appointing an adviser for “strategic” alternatives. DSP Merrill Lynch Ltd. yesterday said it ended its contract with Satyam on Jan. 6, less then two weeks after its was hired.
“The priority is to sell the company. Multiple parties may be interested to buy Satyam to gain access to its revenue and client base,” Susquehanna International’s Friedman said. “But first get the financials in order.”
The software maker, which employed about 53,000 people at offices from the U.S. to the U.K., Brazil and Australia, said today about 2,000 employees left in the last quarter and few were hired in the period amid the global recession.
The fall of Raju, named Ernst & Young Entrepreneur of the Year in 2007, began three weeks ago when Satyam proposed paying $1.6 billion for Maytas Properties Ltd. and Maytas Infra Ltd., both tied to his family. The plan was scrapped 12 hours later, after investors called it a “woeful misuse of cash.” Raju said yesterday the sale was designed to plug the hole in Satyam’s balance sheet.
“Clearly, there is a misalignment between the investments and the expenses that we have versus the revenue stream that we have and we have to bring greater alignment between our income and expenses,” Mynampati said.
CFO Resigns
Satyam’s Chief Financial Officer Srinivas Vadlamani had sent his resignation, which is yet to be accepted, Mynampati said today. He did not specify reasons for the resignation.
Separately, the World Bank last month banned Satyam from bidding for orders for eight years from September, citing “improper benefits” to the bank’s employees and four of the Indian company’s directors quit, following the aborted acquisitions of the two Maytas companies.
As recently as September, the London-based World Council for Corporate Governance gave Satyam its Golden Peacock Award. The council yesterday withdrew the prize because Satyam, which means truth in Sanskrit, had withheld material facts. Raju’s younger brother Rama Raju, the company’s managing director, quit yesterday as well.
To contact the reporter on this story: Harichandan Arakali in Bangalore at harakali@bloomberg.net; Andrea Tan in Singapore at atan17@bloomberg.net
Last Updated: January 8, 2009 10:04 EST
By Harichandan Arakali and Andrea Tan
Jan. 8 (Bloomberg) -- Satyam Computer Services Ltd., India’s fourth-largest software exporter, said it is dealing with a crisis of “unimaginable proportions” after its founder admitted to $1 billion of false accounting and quit the board.
Interim Chief Executive Officer Ram Mynampati said Satyam may have to restate earnings and he couldn’t be sure the company had enough cash for this month. “Our liquidity position is not very encouraging,” Mynampati told reporters in Hyderabad today.
India’s government, markets regulator and accountants group all said they’re investigating Satyam after chairman Ramalinga Raju said profits had been inflated for “several years.” The scandal described as “horrifying” by regulator C.B. Bhave rattled the stock market, sending the Sensex index tumbling 7.3 percent yesterday, the biggest drop in more than 10 weeks.
“It clearly raises question marks about the auditors involved, the board of directors and many things,” said David Chatterjee, a senior investment manager at Pictet Asset Management Ltd. in London, which sold its entire stake in Satyam last quarter. “What’s happened with Satyam is such a huge thing and will have a series of serious ramifications.”
Audited Statements
Mynampati said he wasn’t aware of the financial misconduct as he relied on statements audited by the local unit of New York- based PricewaterhouseCoopers LLP.
Satyam’s accounts were supported by “appropriate audit evidence,” and it wouldn’t be able to comment on the “alleged irregularities,” according to an e-mail from the accounting firm’s public relations adviser Edelman.
Ved Jain, president of the Institute of Chartered Accountants of India, said the group has written to regulator Securities & Exchange Board of India and the Registrar of Companies seeking information on Satyam and its accounts.
“There can be two possibilities: One, the auditor has been negligent. Second, is that he was aware and intentionally overlooked it,” Jain said. “Both ways, my act will be applicable. In the second, it can be a criminal case as well.”
Mynampati said the company’s remaining senior executives were evaluating the veracity of the disclosures made by Raju and couldn’t rule out pressing criminal charges against the founder.
‘Sustenance of Operations’
“The most immediate aim for us is the sustenance of our operations and that’s what we are focusing on,” he said. Mynampati, 51, has a postgraduate degree in computer science from California State University and joined Satyam in 1999, according to the company’s Web site.
Satyam tumbled a record 78 percent to 40.25 rupees in Mumbai trading yesterday. The Indian market is closed for a holiday today. The software provider’s American depositary receipts plunged 90 percent in early New York trading yesterday, prompting a halt by the New York Stock Exchange.
“Satyam will still continue to exist, though probably on a much smaller scale or even in a different form. One thing’s for sure, it won’t be an easy task,” said James Friedman, an analyst at Susquehanna International Group in New York who has suspended his rating on Satyam.
Telstra Corp., Australia’s largest telephone company, said Satyam’s disclosure will be a factor when it cuts two out of its four major information technology suppliers this year. Qantas Airways Ltd., Australia’s biggest airline, said it has a backup plan “in the event Satyam is unable to continue services.”
‘Strategic Alternatives’
Mynampati said the company’s three remaining board members, including himself, would meet as scheduled on Jan. 10 and consider appointing an adviser for “strategic” alternatives. DSP Merrill Lynch Ltd. yesterday said it ended its contract with Satyam on Jan. 6, less then two weeks after its was hired.
“The priority is to sell the company. Multiple parties may be interested to buy Satyam to gain access to its revenue and client base,” Susquehanna International’s Friedman said. “But first get the financials in order.”
The software maker, which employed about 53,000 people at offices from the U.S. to the U.K., Brazil and Australia, said today about 2,000 employees left in the last quarter and few were hired in the period amid the global recession.
The fall of Raju, named Ernst & Young Entrepreneur of the Year in 2007, began three weeks ago when Satyam proposed paying $1.6 billion for Maytas Properties Ltd. and Maytas Infra Ltd., both tied to his family. The plan was scrapped 12 hours later, after investors called it a “woeful misuse of cash.” Raju said yesterday the sale was designed to plug the hole in Satyam’s balance sheet.
“Clearly, there is a misalignment between the investments and the expenses that we have versus the revenue stream that we have and we have to bring greater alignment between our income and expenses,” Mynampati said.
CFO Resigns
Satyam’s Chief Financial Officer Srinivas Vadlamani had sent his resignation, which is yet to be accepted, Mynampati said today. He did not specify reasons for the resignation.
Separately, the World Bank last month banned Satyam from bidding for orders for eight years from September, citing “improper benefits” to the bank’s employees and four of the Indian company’s directors quit, following the aborted acquisitions of the two Maytas companies.
As recently as September, the London-based World Council for Corporate Governance gave Satyam its Golden Peacock Award. The council yesterday withdrew the prize because Satyam, which means truth in Sanskrit, had withheld material facts. Raju’s younger brother Rama Raju, the company’s managing director, quit yesterday as well.
To contact the reporter on this story: Harichandan Arakali in Bangalore at harakali@bloomberg.net; Andrea Tan in Singapore at atan17@bloomberg.net
Last Updated: January 8, 2009 10:04 EST