Lies going on in the world are revealing them selves in a most shocking and distressing way. The latest to join the game is Hyderabad based Satyam Computers. Enjoying a cult status in Hyderabad, the company was synonym with IT success in the state.
The irony lies in the name - Satyam, meaning truth. The real truth is that Ramalinga Raju, the politically-connected, promoter-chairman of Satyam Computers, was lying for years to shareholders, employees and the world at large, building up to India's largest-ever corporate fraud of over Rs 7,000 crore.
The country's fourth largest IT company - after TCSInfosys and Wipro and ahead of HCL - was for several years cooking its books by inflating revenues and profits, thus boosting its cash and bank balances; showing interest income where none existed; understating liability; and overstating debtors' position (money due to it).
The shocking revelations by Raju, have also raised disconcerting questions about corporate governance, the role of auditors (in this case Pricewaterhouse Coopers) and independent directors (Satyam has its share of luminaries such as ISB dean M Rammohan Rao, Krishna Palepu of Harvard Business School who resigned and former union cabinet secretary T R Prasad).
This wasn't some small fly-by-night operator that had been caught out. Satyam is listed on the New York Stock Exchange, boasts 185 Fortune 500 companies on its client list and employs 53,000 people - that's equal to the combined number of employees of Tata Steel and Tata Motors (30,000 and 23,000 respectively).
Within hours of the Satyam scandal hitting the headlines, its employees had flooded job portals across the world wide web in search of alternate employment. Consider that the Rs 7000-plus crore hole in Satyam's books is way more than the company's entire salary bill of Rs 5,040 crore last year. Worse still, it's running really low on cash, and once-potential suitors have turned wary - they don't know what lies beneath.
As for Satyam's shareholders, the stock had gone into freefall before they could even make a decent exit. By the end of the day, large-scale selling by foreign institutional investors, among others, had driven the stock down by almost 78% to just a shade below Rs 40 from Tuesday's close of a little over Rs 179, wiping out Rs 9,376 crore of investor wealth in the space of a day. Compared to its closing price of Rs 225 on December 15, the stock is down more than 82%.
The day after, Raju announced his ill-fated plan to shell out $1.6 billion to acquire his sons' companies, Maytas Properties and Maytas Infra. It created such a furore that Raju was forced to backtrack. But what was widely seen as a move by Raju to bail out his sons was actually aimed at covering Satyam's tracks through fictitious cash transfers.
The timing of what is being called `India's Enron' could not have come at a worse time - just when the stock market was showing signs of responding positively to the Centre and RBI's moves to stimulate the economy through interest rate cuts, duty reductions and accelerated government spending. A day after the sensex crossed the 10,000-mark, it plunged by 749 points, wiping out almost Rs 1.3 lakh crore (or trillion) of market capitalization.
Fearing violence, the Hyderabad police threw a cordon around Satyam's offices and Raju's residence in upmarket Jubilee Hills even as the company's wholetime director-now-interim CEO Ram Mynampati, after expressing ``shock'', swung into damage control mode.
Source : The Economic Times & Times Of India
|