Scandal Breaks Out At Satyam!

Posted on The Times Of India: Satyam India's own Enron scandal: Analysts

• NEW DELHI: With Satyam Computer's founder-chairman Ramalinga Raju today disclosing financial bungling worth thousands of crores at the country's fourth largest IT firm, analysts today termed the entire episode as "India's own Enron scandal".
  
  They also termed Raju as India's Bernard Madoff, who has been charged in the US for fraud worth billions of dollars through a 'Ponzi' scheme, where money is taken from new investors to pass it on as returns for the older investors.
  
  Admitting that Satyam's financials were being inflated over the past years, Raju disclosed irregularities to the tune of about Rs 8,000 crore, in its balance sheet and financial results, and said he was ready for the laws of the land and to face the consequences.
  
  "We have witnessed everything bad but not as bad a scam like this. It has become India's own Enron till date," Ashika Stock Brokers' Research Head Paras Bothra said.
  
  "Raju has relieved the burden on his conscience by bringing to light one of the biggest-ever frauds in Indian corporate history," analysts at another brokerage house Angel Broking said while terming the episode as India's Enron.
  
  Before going belly-up in late 2001, Enron was one of the world's leading energy company, with over 20,000 employees, and had claimed over 100 billion dollar of revenue in 2000.
  
  Enron was termed as "America's Most Innovative Company" for six consecutive years, before it came to the light in end of 2001 that the company's reported financial condition was sustained mainly by institutionalized, systematic and creatively planned accounting fraud, making Enron a symbol of willful corporate fraud and corruption.
  
  Satyam, which has close to 53,000 employees and is the country's fourth biggest IT firm, has also won various innovation accolades and awards for its corporate governance.
  
  Hinting that the size of the financial irregularities could be much more, the analysts said that the figure of about Rs 8,000 crore has been disclosed by the company chairman himself and there could be more in store.
  
  "May be it is just the beginning, something more could just crop up as investigations unfold. Investor confidence has been shattered and a fraud of such magnitude has shaken the confidence of institutional investors, who would have relied on the books of the company," Bothra added.
  
  Angel Broking said that the fact that India's fourth largest IT firm has been involved in a "fraud of mammoth proportions" is likely to have repercussions in terms of global perception of Indian companies and also the local and global investors' confidence in the Indian stock market.
  
  Consultancy and auditing major KPMG's Chief Operating Officer in India Richard Rekhy said that it is a fraud that had been perpetuated over the years, where the top management was involved and it was not possible that other board members, internal auditors were not in the know.
  
  Grant Thornton' Harish H V said it was unlikely that the management was unaware of the whole situation, and the role of independent directors was questionable.
  
  Calling for an external investigation for swift and expeditious action against the loss of confidence, Grant Thornton also said that the regulators "need to act swiftly and ensure that there is no knee-jerk reaction" regarding the image of Indian companies abroad.
  
  Disclosing various irregularities in its books, Raju said that Satyam's balance sheet carried inflated cash-and-back balance of a massive Rs 5,040 crore, as on September 30.
  
  Besides, there was a non-existent accrued interest of Rs 376 crore, liabilities were under-stated to the extent of Rs 1,230 crore on account of funds arranged by Raju by pledging all promoter shares and debtors' position of Rs 490 crore was overstated.
  
  Revenue and operating profits were also overstated in its September quarter, resulting in inflated cash-and-bank balances of Rs 588 crore.
  

And on Reuters: Accounting scandal at Satyam could be India's Enron

• Accounting scandal at Satyam could be India's Enron
  Wed Jan 7, 2009 1:32pm EST
  By Sumeet Chatterjee
  
  BANGALORE (Reuters) - The head of Indian outsourcing company Satyam Computer Services resigned on Wednesday, disclosing that profits had been falsely inflated for years and sending its shares plunging nearly 80 percent.
  
  India's biggest corporate scandal in memory threatens future foreign investment flows into Asia's third-largest economy and casts a cloud over growth in its once-booming outsourcing sector.
  
  The news sent Indian equity markets into a tailspin, with Bombay's main benchmark index tumbling 7.3 percent and the Indian rupee fell.
  
  The New York Stock Exchange halted trading in Satyam's shares indefinitely, saying it wanted to review the news.
  
  Ramalinga Raju, founder and chairman of India's fourth-largest software services exporter, said in a statement that Satyam's profits had been massively inflated over recent years. He added that no other board member was aware of the financial irregularities at the Satyam, which in Sanskrit means "truth."
  
  "If a company's chairman himself says they built fictitious assets, who do you believe here? This has put a question mark on the entire corporate governance system in India," said R.K. Gupta, managing director at Taurus Asset Management in New Delhi.
  
  Raju, who founded Satyam as a family business with his brother and brother-in-law more than two decades ago, said about $1 billion or 94 percent of the cash on the company's books was fictitious.
  
  The startling admission comes as investors across the globe pay more attention to oversight following last month's arrest of Bernard Madoff over charges he swindled clients out of billions of dollars.
  
  "In a bull market, people forgot about it (corporate governance)," said Singapore-based Ashish Goyal, chief investment officer at Prudential Asset Management. "In a bear market chickens are coming home to roost, so it gets highlighted at a time like this."
  
  "RIDING A TIGER"
  
  Satyam's auditor PricewaterhouseCoopers declined comment, saying it was investigating the matter. U.S. Securities and Exchange Commission spokesman John Nester had no comment on the matter.
  
  The New York Stock Exchange said in a statement that it was "currently evaluating the news relating to Satyam and will continue to closely monitor further developments."
  
  Raju, 54, came under close scrutiny last month after the company's botched attempt to buy two construction companies partly owned by its founders, which Raju said on Wednesday was a final attempt to resolve the problem of the fictitious assets.
  
  "It was like riding a tiger, not knowing how to get off without being eaten," Raju, a management graduate from Ohio University, said in his letter, adding he was prepared to face up to the legal consequences.
  
  Satyam said its managing director and co-founder B. Rama Raju, Raju's brother, had also resigned. The company, which went public in 1991, did not give any reason for the resignation.
  
  The company's difficulties multiplied when the World Bank, a major customer, barred Satyam from new business, citing "improper benefits" given to Bank officials.
  
  Satyam rose to prominence in the late 1990s when Raju was among the first to spot outsourcing opportunities in the year 2000 rollover problem, which saw the coming of age of the software outsourcing industry.
  
  Just three months ago, Satyam received a Golden Peacock award from a group of Indian directors for excellence in corporate governance.
  
  By close of trade, Satyam's share value slumped to about $550 million from around $7 billion as recently as last June.
  
  New York-listed Satyam specializes in business software and back-office services for clients such as General Electric and Nestle.
  
  SWAT TEAM
  
  Satyam said in a letter to employees that it had named Ram Mynampati as interim CEO, and named a "SWAT team" of senior managers to help him run the company.
  
  Analysts said that was unlikely to satisfy investors.
  
  "I think there is no future for this stock. This case for India is similar to what happened to Enron in the U.S.," said Jigar Shah, senior vice-president at Kim Eng Securities.
  
  "It will not stop at Satyam. Many more companies will come into scrutiny like that. There is a strong possibility investments in India will be affected."
  
  The scandal set off a wave of condemnation from Indian market regulators and government officials, and prompted banker Merrill Lynch to terminate its engagement with Satyam.
  
  "It's going to impact the Indian outsourcing industry. Customers are going to be concerned about offshoring firms in India," said Sudin Apte, country head of Forrester in the western city of Pune.
  
  Satyam said it would go ahead with a planned board meeting on Saturday to consider a share buyback following a rash of broker downgrades even after its acquisitions were called off last month.
  

Comments:

• Raju, who founded Satyam as a family business with his brother and brother-in-law more than two decades ago, said about $1 billion or 94 percent of the cash on the company's books was fictitious.

Holy COW!!! 94% factitious????

• The 54-year-old Satyam chairman came under close scrutiny last month after the company's botched attempt to buy two construction firms partly owned by its founders, which Raju said on Wednesday was a final attempt to resolve the problem of the fictitious assets.

Partly owned by its founders? Again it shows why RPT or Related Party Transactions stinks!

• Satyam said its managing director and co-founder B. Rama Raju, Raju's brother, had also resigned. It did not give any reason for the resignation.

Surely they knew!!!

• The company's difficulties multiplied when the World Bank, a major customer, barred Satyam from new business, citing "improper benefits" given to Bank officials.

Improper benefits given to Bank Officials???? Holy COW!

• Just three months ago, Satyam received a Golden Peacock award from a group of Indian directors for excellence in corporate governance.

Holy Cow!!!!!!!!! Excellence in corporate governance??? I wonder if "improper benefits" were involved!!!!

• Satyam said it would go ahead with a planned board meeting on Saturday to consider a share buyback following a rash of broker downgrades even after its acquisitions were called off last month.

Consider a share buyback????

OMIGOD!!!!!!

Totally unbelievable!!!!!!!!!!!!!!!!!!!!!!!!!!!!!