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Business News 2009
Business News->Satyam head quits after admitting massive fraud, stock crashes
Satyam head quits after admitting massive fraud, stock crashes

Hyderabad, Jan 7 (IANS)

Ramalinga RajuIn a development that shook India's corporate and financial worlds Wednesday, co-founder and chairman of Satyam Computers B. Ramalinga Raju resigned after confessing to a Rs.40 billion (Rs.4,000 crore or $823 million) fraud that had been going on for years. As the scrip of the beleagured software services firm crashed, the Ministry of Company Affairs started an investigation into the way it had cooked its balance sheets for years.



"It is with deep regret and tremendous burden that I am carrying on my conscience, that I would like to bring the following facts to your notice," Raju said in a regulatory statement, and listed out the 'facts' that led to his decision to quit. According to the statement, the company had cooked its books resulting in an "inflated (non-existent) cash and bank balances of Rs.5,040 crore" over several years.

"What started as a marginal gap between actual operating profits and the one reflected in the books of accounts has attained unmanageable proportions," said Raju.

The company balance sheet as on Sep 30 last year had an inflated cash and bank balance of Rs.5,361 crore (Rs.52.61 billion or $1.1 billion), as against the correct amount Rs.5,040 crore (Rs.50.40 billion or $1.04 billion).

The company showed an accrued interest in the books to the tune of Rs.3.76 billion (Rs.376 crore), a non-existent amount. A liability of Rs.12.3 billion (Rs.1,230 crore) remained understated on account of funds arranged by Raju while the debts of the company were overstated as Rs.4.9 billion (Rs.490 crore).

"The difference in real profits and the one reflected in the books was further accentuated by the fact that the company had to carry additional resources and assets to justify higher level of operations - thereby significantly increasing the cost," Raju added.

The aborted Maytas acquisition by Satyam was the last attempt to fill the fictitious assets with real ones. Maytas' investors were convinced that this is a good divestment opportunity and a strategic fit. Once Satyam's problems were solved, it was hoped that Maytas' payments could be delayed but that was not to be.

The Satyam scrip plunged over 72.31 percent just after 1:30 p.m. Wednesday as a result of the announcement and was trading at Rs.41.60 from a close of Rs.179.10 Tuesday.

"We have received a communication with regards to this. Authenticity of the communication has to be established; once we have clear information, action will be taken," Corporate Affairs Minister Prem Chand Gupta said soon after the news of Raju's resignation broke out.

The rise, rise and fall of Satyam
Hyderabad, January 7, 2009 (IANS)

Satyam founder B. Ramalinga Raju, who shocked India by admitting massive fraud over several years, was the Ernst and Young Entrepreneur of the Year in 2007 and the company won the Golden Peacock Global Award for Excellence in Corporate Governance given by the World Council for Corporate Governance.

Here is a brief history of the company, which was once a flagbearer of Cyberabad, as its headquarters and Andhra Pradesh capital Hyderabad were hailed in the early years of the IT boom in late 1990s.

  • Established: June 24, 1987

  • Global Headquarters: Hyderabad

  • Development Centres: Bangalore, Basingstoke, Beijing, Bhubaneswar, Budapest, California, Chennai, Chicago, Dalian, Georgia, Guangzhou, Gurgaon, Hartford, Hyderabad, Kuala Lumpur, Melbourne, Mumbai, Munich, Mississauga, New Jersey, Ontario, Pune, Sao Paulo, Shanghai, Singapore, Sydney, Tokyo, Wiesbaden

  • Employee strength: 52,865 (including employees in subsidiaries and joint ventures) as on Sep 30, 2008

  • 1991: Debuts on Bombay Stock Exchage with an IPO oversubscribed 17 times

  • 1999: Satyam Infoway (Sify) becomes the first Indian Internet company listed on Nasdaq; presence established in 30 countries

  • 2001: Listed on the New York Stock Exchange with trading name SAY

  • 2006: Revenue exceeds $1 billion; sets up the first "Global Innovation Hub" in Singapore and operations in Guangzhou, China

  • 2007: Becomes the official IT services provider for the FIFA World Cups, 2010 (South Africa) and 2014 (Brazil); Ramalinga Raju named the "Ernst and Young Entrepreneur of the Year"

  • 2008: Revenue crosses the $2-billion mark

  • 2008 Dec 16: Announces plan to buy two Maytas firms; calls off the deal within hours in the face of shareholders' opposition; share price tumbles

  • 2008 Dec 18: Announces board meeting on Dec. 29 to consider share buyback as markets hammer the shares

  • 2008 Dec 23: World Bank confirms blacklisting Satyam for eight years on grounds of data theft and bribing bank officials

  • 2008 Dec 26: The crisis takes its first toll - Mangalam Srinivasan, an independent director, quits

  • 2008 Dec 28: Puts off board meet to Jan 10

  • 2008 Dec 29: Three more directors quit

  • 2009 Jan 2: Founder-promoters stake falls from 8.64 percent to 5.13 percent as financial institutions with whom the entire stake was pledged dump the shares

  • 2009 Jan 6: Promoters' stake falls further as lenders offload more pledged shares

  • 2009 Jan 7: Ramalinga Raju sends shockwaves by admitting fraud. Resigns as chairman

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