Text size [+][-] Saturday November 21 2009GLOBAL EDITION
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By Una Galani
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The chairman and founder of Satyam Computer Services Ramalinga Raju resigned on January 7 after revealing profits at India’s fourth-largest software exporter had been inflated for years. The stock price fell 78% and prompted a 7% fall in the Bombay benchmark index.The disclosure follows Satyam’s failed attempt in December to buy two construction firms in which the company’s founder also held stakes. Four directors subsequently resigned and the World Bank, a key customer, cut all ties with the company. The irregularities were detailed in a letter sent to the Bombay Stock Exchange. In the quarter that ended on September 30, actual revenues were INR21bn, 22% less than the reported INR27bn. Cash and bank balances were INR3.8bn compared to the reported INR53.61bn. Operating margin was 3% of revenue, instead of the reported 24%. Raju claims the fraud originated from an attempt several years ago to cover a marginal gap in the operating profit numbers. The deceit swelled to “unmanageable proportions” and finally unravelled after lenders made margin calls on an INR12.3bn loan pledged against his family stake to keep operations going” at Satyam over the last two years. "It was like riding a tiger, not knowing how to get off without being eaten," said Raju. PricewaterhouseCoopers was Satyam’s auditor. The company is listed in London and New York. Satyam means “truth” in Sanskrit.
una.galani@breakingviews.com