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Satyam chairman quits after admitting to fraud

business Updated: Jan 08, 2009 02:45 IST
Gaurav Choudhury
Gaurav Choudhury
Hindustan Times
Ramalinga Raju resigns from Satyam Board

The country was rocked by possibly its biggest corporate fraud on Wednesday as B. Ramalinga Raju, chairman of Satyam Computer Services, resigned after confessing that the company’s profits and cash reserves had been doctored for several years. This threatens the image of India’s iconic software industry that fuels aspirations for jobs and prosperity among millions of middle-class people.

The revenue figures inflated to keep share prices high and package a shaky business as rosy, revealed a hole well above Rs 7,000 crore and reminded many of the Enron case in the US that led to the conviction of key executives.

The fraud rattled lakhs of employees in the information-technology sector and investors already smarting under the impact of a global financial meltdown and a local slowdown. Key investors — including biggest shareholder Aberdeen — dumped shares as truth became a casualty in the company named Satyam. The company’s share plunged nearly 80 per cent to Rs 40 in India, and 90 per cent in the US, where it is listed on the New York Stock Exchange.

Raju faces a government-led probe after coming clean in what he said was an act of conscience. In a letter addressed to the company’s board, Raju admitted that the balance sheet, riddled with fictitious assets and non-existent cash, contained a big hole that could no longer be concealed.

That brought to a head a month-long crisis that began when Satyam abruptly tried to use its $1.6 billion cash chest to acquire a real-estate firm controlled by family-controlled firmMaytas.

“The aborted Maytas acquisition deal was the last attempt to fill the fictitious assets with real ones,” Raju said in his letter. “What started as a marginal gap between actual operating profits and the one reflected in the books of accounts continued to grow over the years… and attained unmanageable proportions as the size of the company grew significantly… Every attempt made to eliminate the gap failed. It was like riding a tiger, not knowing how to get off without being eaten.”

Some analysts claimed that after adjusting the figures for overstated cash, accrued interest and debtors and understated liabilities, the net worth of the company could be very near zero.

Nandan Nilekani, executive chairman, Infosys, said: “It shows that it is not enough to have rules.” Raju said he was “now prepared to subject himself to the laws of the land and face consequences thereof”.

There have been reports that Satyam had been hunting for a buyer for a while. These same reports cited Tech Mahindra and HCL as possible suitors. HT learnt that these companies raised serious questions about the authenticity of Satyam’s books and sought clarifications. This may have forced Raju’s hands.

(with inputs from HTC Hyderabad and agencies)