Fate of Satyam after Raju Resigns

This is today’s shocking and hot news for India. Chairman B. Ramalinga Raju’s admission that Satyam Computer Services Ltd’s Balance Sheet was completely fabricated got the stock
Crashing down by 66.5 per cent to Rs 40 from Wednesday’s high of Rs 188.70 (check here)

Company share hit a lowest of Rs 30, while previous 52 week low was marked at 114, as details of the extent of fraud perpetrated by the promoters shook the stock market.
Not only the prices of own company share but this news has brought down the whole Sensex. The BSE IT Index plunged 7.70 per cent and BSE Realty tumbled 11.20 per cent.

Satyam fraud raised question over corporate governance of other companies also, especially IT. The Satyam fiasco has left a big question mark on corporate governance in India while sending a negative signal to the foreign institutional investors, analysts said. Company was already in news for bad governance over decision to invest in family business and 8 year ban from World Bank. Check my previous post on this topic.

The Satyam story poses a big question over the credibility of auditors in general, as PricewaterhouseCoopers was auditor of the company. The bankers to Satyam included Bank of Baroda, BNP Paribas, ICICI, HDFC, Citi Bank, HSBC.

Chairman’s letter to the company board and SEBI revealed a fraud of unprecedented proportions. Raju stated that Satyam’s balance sheet as on Sep 30, 2008, carries an inflated (non-existent) cash and bank balances of Rs 5,040 crore (as against Rs 5,361 reflected in the books). Further, it carries an accrued interest of Rs 376 crore which is non-existent. The books carry an understated liability of Rs 1,230 crore on account of funds arranged by Raju, and an over stated debtors position of Rs 490 crore (as against Rs 2,651 crore in the books).

The Securities and Exchange Board of India on Wednesday said it would take all steps under the law for which it has started discussions with government and bourses. As Raju mentioned in his letter that neither he nor managing director have been benefited from this and it is a result of inflated profits company was showing over the past few years (source unknown, and I am not responsible for validity of this statement).

There may not be much impact on the other IT companies, except a bad name in general for Indian corporate and one may see Infosys, Wipro or TCS go up in next trading sessions. Companies in competition of Satyam overseas can look it as opportunity as management will take some time to get hold on company and it may not pursue its growth that aggressively like it was doing before. It can act as advantage for Satyam’s competitors.