Satyam chief quits over accounts fraud

New Delhi: Satyam Computer Services Ltd chairman B. Ramalinga Raju resigned after saying he falsified accounts and assets, sending shares of the Indian software services provider to a record decline.

Raju, 53, unsuccessfully tried to sell two companies to Satyam last month in a final attempt to plug Rs 50.4 billion (Dh3.81 billion) of "fictitious assets" on the company's balance sheet, Hyderabad-based Satyam said in a statement yesterday.

Profits from the main business have been inflated "over a period of last several years," Raju said in a letter to the board.

The transactions started to unravel after shareholders vetoed the sale of two construction companies, four directors quit the company and the World Bank barred Satyam from bidding for contracts.

India's markets regulator C.B. Bhave said the event is of "horrifying magnitude" as Satyam dragged down the benchmark stock index already hit by a record slump last year.

"This is a black day for India, the software sector and corporate governance claims," Arun Kejriwal, founder of Kejriwal Research & Investment Services, said in Mumbai. "If at all there's an event that could be the biggest setback for corporate India, it is this."

Shares of Satyam, which means "truth" in Sanskrit, plunged 69 per cent to RS 55 in Mumbai trading. The Sensitive Index tumbled 4.3 percent.

Of the reported cash and bank balances of Rs 53.61 billion on September 30, Rs 50.4 billion was non-existent, Raju said in the letter sent to the Bombay Stock Exchange.

Operating margin at Satyam, India's fourth-largest software exporter, in the quarter ended September 30 was 3 per cent of revenue, instead of the reported 24 per cent, Raju said in the letter. The company's revenue was Rs 21 billion, 22 per cent less than the inflated figure of Rs 27 billion that had been reported.

Raju arranged Rs 12.3 billion "to keep operations going" at Satyam over the last two years, by pledging the founders' shares and raising funds from other sources, he said.

"What started as a marginal gap between actual operating profit and the one reflected in the books of accounts continued to grow over the years," Raju said.

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

The founders' concern was that a poor performance, combined with the fact they held a small stake in the company, would make Satyam an easy target for a takeover, exposing the inflated figures, he said.

Satyam yesterday denied a report that the company received a merger offer from Tech Mahindra Ltd., an Indian software-services provider controlled by Mahindra & Mahindra Ltd. and partly owned by BT Group Plc Tech Mahindra termed the report of a proposed all-stock merger as "speculative."

Earlier in the week, MindTree Ltd denied a report it was one of two smaller rivals in talks for a merger with Satyam. The Hyderabad-based company is in talks to merge with smaller rivals including HCL Technologies and MindTree, the Business Standard reported on January 5, citing unidentified people at investment banks.

Raju's attempts to "keep the wheel moving" at Satyam was finally derailed as lenders sold most of the pledged shares because of margin calls, he said.

SRSR Holdings Pvt., which holds the founding family's stake, reduced their holding to 3.6 per cent from 5.13 per cent, Satyam told the Bombay Stock Ex change yesterday.

Of the 3.6 per cent, 1.7 per cent is pledged with lenders, it said. The stake sales by the families of chairman Raju and his younger brother, manager director Rama Raju, reduced their holdings to below levels held by institutional investors, including Aberdeen Asset Management Plc.

Funds run by Aberdeen own 6.6 per cent of Satyam, according data until the end of October.