Satyam Computer is in the headline again. The scandal has deepened, with it’s chairman admitting to fraudaulent accounting to inflate profits and assets over several years. Is this an isolated case ? I think not, as inflating profit and assets is rather easy to do in a booming market. But when the market comes down hard, then it becomes harder to keep up the appearance of normality. Thus Satyom Computer wanted to buy an infrastructure company as "the last attempt to fill fictitious assets with real ones".
The head of one of India’s biggest outsourcing firms, Satyam Computer, resigned on Wednesday amid a scandal over a billion dollar fraud that sent company stocks into freefall.
Company founder and chairman B Ramalinga Raju admitted the Hyderabad-based software services firm had falsified accounts and assets and inflated its profits over several years.
The company overstated its cash and bank balances to the tune of more than 50 billion rupees (more than $A1.38 billion) in its September-end balance sheet, "purely on account of inflated profit over a period of several years," Raju said in a statement.
Satyam shares plummeted 77.69 per cent, or 139.15 rupees, to 39.95 rupees on the Mumbai Stock Exchange on Wednesday, as investors dumped the company.
The broader benchmark 30-share Sensex plunged 7.25 per cent to 9,586.88.
Satyam – a leading software consultancy, system integration and outsourcing firm with clients across 65 countries – had announced the $US1.6 billion ($A2.21 billion) buyout of the Maytas infrastructure firm earlier this month, but abruptly reversed its decision after investors rejected the plan.
Raju admitted in the statement that the Maytas acquisition plan was "the last attempt to fill fictitious assets with real ones."
Analysts and the stock market regulator have reacted with shock at the fraud and major brokerages have suspended ratings for the stock.
"This is an event of horrifying magnitude and it’s first of its kind," CB Bhave, chairman of market regulator Sebi, told the Press Trust of India.
"We are in touch with ministry of corporate affairs… we are also in discussion with them as to what steps need to be taken," Bhave said.
"This is alarming and disturbing… like a punch which catches you unaware. The fraud will have an impact over the short-term," Bharat Iyer, India strategist with JP Morgan, said.
The investment bank had already placed a "sell" rating for the stock because of the global economic slowdown.
"The Satyam management’s continuance seems to be untenable regardless of the new board composition. What this sorry episode has done is leave a huge hole in corporate governance at Satyam," said Viju George, analyst at Edelweiss Securities, in a report to clients.
"It is one of the worst days for Indian investors as a truly shocking and mind-numbing development," said Hitesh Agrawal, head of research with Angel Broking, in a report titled "India’s Enron".
The Satyam chief apologised "to all Satyamites and stakeholders, who have made Satyam a special organisation, for the current situation."
"I am now prepared to subject myself to the laws of the land and face consequences thereof," Raju added.
"This incident is particularly unfortunate. It is however a stand-alone case of failure of corporate governance," said a statement from an IT lobby group, the National Association of Software and Services Companies (NASSCOM).
The Satyam management is expected to meet shortly in the wake of the fraud, media reports said.
"We are shocked by the contents of his (chairman’s) letter. We will meet shortly to strategise a way forward in the wake of the fraud," Satyam’s interim chief executive Ram Mynampati said.
Late last year the World Bank barred Satyam from doing business with it for eight years over "improper benefits" paid to staff.
© 2009 AFP