| Satyam chief's letter talks of 'tremendous burden' on his conscience. |
Nowhere to hide: Mr B. Ramalinga Raju, Chairman, Satyam Computer Services Ltd (file photo).
Following is the text of the letter Satyam Computer Services Chairman, Mr B. Ramalinga Raju, wrote to the company's board. Copies of the letter were also sent to the SEBI and the stock exchanges.
Dear Board members,
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:
1. The balance sheet carries as of September 30, 2008:
a) Inflated (non-existent) cash and bank balances of Rs 5,040 crore (as against Rs 5,361 crore reflected in the books);
b) An accrued interest of Rs 376 crore, which is non-existent;
c) An understated liability of Rs 1,230 crore on account of funds arranged by me;
d) An overstated debtors' position of Rs 490 crore (as against Rs 2,651 reflected in the books)
2. For the September quarter (Q2) we reported a revenue of Rs 2,700 crore and an operating margin of Rs 649 crore (24 per cent of revenue) as against the actual revenues of Rs 2,112 crore and an actual operating margin of Rs 61 crore (3 per cent of revenues). This has resulted in artificial cash and bank balances going up by Rs 588 crore in Q2 alone.
The gap in the balance sheet has arisen purely on account of inflated profits over several years (limited only to Satyam standalone, books of subsidiaries reflecting true performance). 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. It has attained unmanageable proportions as the size of the company operations grew significantly (annualised revenue run rate of Rs 11,276 crore in the September quarter of 2008, and official reserves of Rs 8,392 crore). The differential in the 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 a higher level of operations thereby significantly increasing the costs.
Every attempt made to eliminate the gap failed. As the promoters held a small percentage of equity, the concern was that poor performance would result in the takeover, thereby exposing the gap. It was like riding a tiger, not knowing how to get off without being eaten.
The aborted Maytas acquisition deal 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 problem was solved, it was hoped that Maytas' payments can be delayed. But that was not to be. What followed in the last several days is common knowledge.
I would like the board to know:
1. That neither myself, nor the Managing Director (including our spouses) sold any shares in the last eight years - excepting for a small proportion declared and sold for philanthropic purposes.
2. That in the last two years a net amount of Rs 1,230 crore was arranged to Satyam (not reflected in the books of Satyam) to keep the operations going by resorting to pledging all the promoter shares and raising funds from known sources by giving all kinds of assurances (statement enclosed only to the members of the board).
Significant dividend payments, acquisitions, capital expenditure to provide for growth did not help matters. Every attempt was made to keep the wheel moving and to ensure prompt payment of salaries to the associates. The last straw was the selling of most of the pledged shares by the lenders on account of margin triggers.
3. That neither me nor the managing director took even one rupee/dollar from the company and have not benefited in financial terms on account of the inflated results.
4. None of the board members, past or present, had any knowledge of the situation in which the company is placed. Even business leaders and senior executives in the company, such as, Ram Mynampati, Subu D., T.R. Anand, Keshab Panda, Virender Agarwal, A.S. Murthy, Hari T., S.V. Krishnan, Vijay Prasad, Manish Mehta, Murli V., Shriram Papani, Kiran Kavale, Joe Lagioia, Ravindra Penumetsa, Jayaraman and Prabhakar Gupta are unaware of the real situation as against the books of accounts. None of my or managing directors' immediate or extended family members has any idea about these issues.
Having put these facts before you, I leave it to the wisdom of the board to take the matters forward. However, I am also taking the liberty to recommend the following steps:
1. A task force has been formed in the last few days to address the situation arising out of the failed Maytas acquisition attempt.
This consists of some of the most accomplished leaders of Satyam: Subu D, T.R. Anand, Keshab Panda and Virendra Agarwal, representing business functions, and A.S. Murthy, Hari T. and Murali V. representing support functions.
I suggest that Ram Mynampati be made the chairman of this task force to immediately address some of the operational matters on hand. Ram can also act as an interim CEO reporting to the board.
2. Merrill Lynch can be entrusted with the task of quickly exploring some merger opportunities.
3. You may have a 'restatement of accounts' prepared by the auditors in light of the facts that I have placed before you.
I have promoted and have been associated with Satyam for well over 20 years now. I have seen it grow from few people to 53,000 people, with 185 Fortune 500 companies as customers and operations in 66 countries. Satyam has established an excellent leadership and competency base at all levels. I sincerely apologise to all Satyamites and stakeholders, who have made Satyam a special organisation, for the current situation. I am confident they will stand by the company in this hour of crisis.
In light of the above, I fervently appeal to the board to hold together to take some important steps. Mr T.R. Prasad is well placed to mobilise support from the Government at this crucial time. With the hope that members of the task force and the financial advisor, Merrill Lynch (now Bank of America), will stand by the company at this crucial hour, I am marking copies of the statement to them as well.
Under the circumstances, I am tendering the resignation as the chairman of Satyam and shall continue in this position only till such time the current board is expanded. My continuance is just to ensure enhancement of the board over the next several days or as early as possible.
I am now prepared to subject myself to the laws of the land and face the consequences thereof.
(B. Ramalinga Raju)
NIFTY & SENSEX SPOT LEVELS FOR 8th Jan 2009
 | 2920.40 | ( -6.18 %) | -192.40 |  |
| 1 | 2 | 3 | ||
| Resistance | 3082.33 | 3244.27 | 3341.33 | |
| Support | 2823.33 | 2726.27 | 2564.33 | |
 | 9586.88 | ( -7.25 %) | -749.05 | | |
| 1 | 2 | 3 | |||
| Resistance | 10201.02 | 10815.15 | 11160.59 | ||
| Support | 9241.45 | 8896.01 | 8281.88 | ||
Strong & Weak futures
This is list of 10 strong futures:
Hind Zinc, India Cem, Grasim, Sterlite Inds, Ultra Cem Co, PFC, Balram Chin, Sail, Tata Steel & Guj Alkalies.
And this is list of 10 Weak Futures:
Satyam, IVRCL Infra, LITL, DLF, Bhushan Steel, KPIT, Ansal Infra, JP Associat & TVS Motor.
Nifty is in Up Trend.
| FII trading activity on NSE and BSE in Capital Market Segment(In Rs. Crores) | ||||
| Category | Date | Buy Value | Sell Value | Net Value |
| FII | 07-Jan-2009 | 2496.52 | 3607.77 | -1111.25 |
| DII trading activity on NSE and BSE in Capital Market Segment(In Rs. Crores) | ||||
| Category | Date | Buy Value | Sell Value | Net Value |
| DII | 07-Jan-2009 | 1103.47 | 1608.96 | -505.49 |
Rs 7,000-crore fraud
| Ramalinga Raju admits to inflating Satyam profits. |
It was like riding a tiger, not knowing how to get off without being eaten - Mr B. Ramalinga Raju
Stunning exit: Satyam's head office in Hyderabad. Mr B. Ramalinga Raju, Chairman of Satyam Computer Services, bowed out of office on Wednesday. -
Our Bureau
Hyderabad, Jan. 7 In perhaps one of Corporate India's worst unfolding chapters, Mr B. Ramalinga Raju, Founder-Chairman of the $2-billion Satyam Computer Services, dramatically stepped down on Wednesday admitting to faking financial figures of the company to the tune of Rs 7,136 crore, including Rs 5,040 crore of non-existent cash and bank balances.
The startling disclosure by Mr Raju, considered one of the poster boys of Indian IT, jolted the corporate world, investor community, Government and large pool of young professionals, pushing the fourth largest Indian IT company into a crisis, exposing it to acquisitions and leaving the future of 53,000 employees in balance.
On a day of fast moving developments, the Satyam scrip was slaughtered to a low of Rs 39. 95, down by 78 per cent, and several FIIs (which hold nearly 61 per cent) offloaded their shares. The market cap plummeted to Rs 2,705 crore from over Rs 12,000 crore on a single day.
Mr Ram Mynampati, President, was quickly made interim CEO to steer the troubled ship, while Mr Raju would continue till the new board was constituted on January 10.
Stunning his well wishers and investors, Mr Raju revealed the real motive behind the December 16 bid to acquire Maytas companies for $1.6 billion. It was to swap the fictitious cash reserves of Satyam built over years with the Maytas assets. Mr Raju thought the payments to Maytas could be delayed once the Satyam's problem was solved.
But unprecedented investor outcry, media pressure and highly unfavourable economic conditions played spoil sport to Mr Raju's plans, leading to his exit.
Fudged figures
Mr B. Ramalinga Raju
Mr Raju in his disclosure to the BSE admitted that the balance sheet for September 30, 2008, comprised faked and inflated figures of revenue, profit, interest and debt. The list includes Rs 5,040 crore of non-existent cash and bank balances, non-existent accrued interest, understated liability of Rs 1,230 crore on account of funds raised by Mr Raju and overstated debtors position of Rs 490 crore (as against Rs 2,651 crore).
"What started as a marginal gap between actual operating profit and the one reflected in the books continued to grow over the years. It has attained unmanageable proportions as the size of the company's operations grew over the years," Mr Raju explained.
One lie led to another. The problem further worsened as the company had to carry additional resources and assets to justify higher level of operations, leading to increased costs.
As things went out of hand, Mr Raju was forced to raise Rs 1,230 crore by pledging the family-owned shares to keep the operations going. His woes were compounded with dues in several crores to vendors, fleet operators and construction companies.
The offloading of the pledged shares by IL&FS Trust and others brought down the promoters' stake from 8.65 per cent to a fragile 3.6 per cent. The build-up by FIIs and investors and buzzing marketing rumours of possible suitors, seemingly hastened the exit of the promoter. By the end of the day, Mr Raju was left facing charges from several sides. The Ministry of Corporate Affairs, the State Government and the market regulator, SEBI, were also disposed to probing the affairs of the company and his role as well as corporate governance issues. The city was also afloat with rumours about his whereabouts.
The company has been putting a brave front for the last 21 days, following the failed deal with Maytas that it will win back investor confidence. It even challenged World Bank, replied to Upaid case in US, but in the end Mr Raju bowed to pressures. An angry DSP Merrill Lynch which was given the task of suggesting measures to bail out also quit today.
SubmissionMr Raju argued that neither he nor the Managing Director (his brother Mr Rama Raju) and their spouses sold any shares in the last eight years. "Significant dividend payments, acquisitions, capital expenditure to provide for growth did not help. The last straw was the selling of most of the pledged shares by the lenders," he said.
Mr C.B. Bhave, Chairman of SEBI, has described the Satyam revelation as an event of "horrifying magnitude". "We are in touch with the Ministry of Company Affairs and at SEBI we will see what are the measures we can take," he said.
Reports said both SEBI and MCA would depute special teams to Hyderabad to scrutinise the Satyam books.
Soon after taking over the reins, Mr Mynampati Ram dashed off a letter to 53,000 employees of the group, and said that veterans in the company formed a SWAT (an acronym for military term Special Weapons and Tactics unit) to handle the crisis.
Apologising to the staff and their families for the uncertainty and inconvenience, Mr Ram cautioned that the company might face rumours in the days to come and that the competition would try and leverage it to their advantage.
--Arvind Parekh
+ 91 98432 32381
