Byrraju Ramalinga Raju resigned as chairman of Satyam Computers, India’s fourth largest Information Technology company, on Wednesday after admitting to the Board of Directors that the accounts were fudged to the tune of Rs. 7,106 crore over a period of “several years.”
Before stepping down, Mr. Raju recommended Ram Mynampati, Board Member and president, as interim Chief Executive Officer (CEO), to run the show.
The 53-year-old business tycoon quit ahead of a crucial meeting of the Board of Directors on January 10. It climaxed a turbulent period of three weeks when the company was plunged into a crisis following an aborted attempt to acquire Maytas Infra and Maytas Properties, promoted by Mr. Raju’s sons, on December 16.
Markets reacted virulently to Mr. Raju’s admission of hiding several facts from the board and the stakeholders. Satyam’s stock nosedived on the Bombay Stock Exchange to an all-time low of Rs. 39.95 losing 77.69 per cent, though it opened at Rs. 188.70. Securities and Exchange Board of India (SEBI) chairman C.P. Bhave described Mr. Raju’s disclosure as an event of “horrifying magnitude.”
In his five-page letter to the Directors, Mr. Raju confessed that the company’s balance sheet had inflated cash and bank balances of Rs. 5,040 crore which never existed and an accrued interest of Rs. 376 crore which was also non-existent. Also, a liability of Rs. 1,230 crore was understated and debtor position of Rs. 490 crore “overstated”.
The Satyam chief said, “the gap in the balance sheet has arisen purely on account of inflated profits over a period of last several years.” Every attempt made to eliminate the gap failed, he said and apologised to all “Satyamites and stakeholders.”
Barring Chief Financial Officer Srinivas Vadlamani, Mr. Raju gave a “clean chit” to the top executives, board members and also his and his brother’s families. (His brother, B. Rama Raju, also resigned as Managing Director and CEO of Hyderabad’s IT Bellwether.) “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,” he said.
Meanwhile, SEBI was in touch with the Ministry of Corporate Affairs to take all necessary steps against the 21-year-old company which employs 53,000 and has operations in 65 countries serving 185 Fortune 500 companies. Andhra Pradesh Chief Minister Y.S. Rajasekhara Reddy ordered a preliminary inquiry by the CID whether the State government could initiate any criminal action.
Dr. Reddy wrote to Prime Minister Manmohan Singh to constitute a management team comprising Azim Premji of Wipro, N.R. Narayana Murthy of Infosys and S. Ramadorai of TCS to manage the affairs of Satyam to restore the confidence of the global customers so that the interests of employees and other stakeholders were protected. This arrangement could be in place till a credible alternative management was put in place. Auditing firm DSP Merrill Lynch on Wednesday terminated its engagement with the company soon after Mr. Raju announced his resignation. Mr. Raju said he would continue in his position “only till such time the current board is expanded.”
A PTI report said Mr. Raju is believed to have left for the U.S. in connection with a court case.
Men are habitually done in by one of the three Ws—wine, women or wealth—but Byarraju Ramalinga Raju’s downfall came via an earthier route: an
insatiable hunger for land.
After returning to India in 1977 with an MBA from Ohio, the 1954-born Raju started a spinning mill—a business that broke away from the family’s agricultural tradition. The farmer’s son wanted to be different, and that desire marked his spectacular rise and fall in corporate India.
After the mill, he went into the construction business, but it was not brick-and-mortar that seduced him. In the late eighties, information technology was a new frontier, still faint but shiny, and one that drew the daredevil in Raju. In 1987, Satyam Computer Services was born, and all his previous ventures were stamped with the same high-sounding name, whose meaning, ‘truth’, is being endlessly mocked in editorials today.
Satyam showed it had serious smarts in 1992, when, in what was touted as the first offshore deal, it got work from a tractor company, John Deere, in Illinois. Aware that the telecom links between India and US were most inadequate, he set up an office of 50 engineers right next to the John Deere building. Nicknamed Little India, it swiftly executed the tractor company’s contract with no physical contact, simply by keeping the 64 kbps lines between the buildings humming.
In the meantime, the construction firm and spinning mill were liquidated and Satyam launched its first public issue. By 1999, when the Y2K bug threatened a digital apocalypse, Satyam had widely known as an IT titan with subsidiaries like Satyam China, Satyam Japan, Dr Millennium and Satyam Infoway or Sify. The last named company was listed on the Nasdaq in 2001 and the next year Satyam was on the New York Stock Exchange.
All the millions that computers brought him, Raju poured into buying land in Hyderabad, which was then still a provincial town. Most of the shopping was in a locality called Medchal, on the city’s outskirts. Soon, he was a formidable landlord—although the holdings were not in his name. He cannily befriended Andhra Pradesh chief minister Chandrababu Naidu, who proudly paraded him before President Bill Clinton like a trophy baron of a progressive state. Naidu and Raju fed off each other, the one drawing on the other, leading a Naxalite to comment that if Raju’s land holdings were forfeited, there would be enough to satisfy the impoverished farmers of Telangana. Nobody took any notice: Raju’s IT credentials were overpowering.
But the wheels of democracy turned and when Y S Rajasekhara Reddy came to power in 2004, the friends of Naidu were given short shrift. But Raju was able to befriend Reddy, after he is said to have paid a ‘‘hefty penalty’’ to atone for being a Naidu loyalist. What the penalty was no one knows. But Reddy’s policies of boosting realty around Hyderabad suited Raju perfectly. Land prices spiralled, Raju grew richer. Owning land became an obsession. ‘‘He was intoxicated for land. He began to liquidate his shareholdings in Satyam to buy land,’’ says a Hyderabad businessman. All the promoter shareholdings that were consolidated in 2006 were pledged to banks, and Rs 1200 crore raised. Every last cent went into the soil.
By now, Raju was seriously considering selling Satyam and making Maytas—the company he started in 1988 and which is Satyam spelt backwards—his mainstay. Maytas was being looked after by his sons, but land was such an exciting business, Raju felt. Speculation of IBM taking over began to grow, and according to a Satyam employee, the deal fell through only because the price was not right.
The higher you go, the harder you fall, and the intimations of mortality came when Raju was at his peak. In July last year, Maytas won the contract to build the Hyderabad metro. What everybody found startling was Maytas’s offer to pay cash up front whereas all the other bidders had asked for ‘viability gap’ funding. Maytas’s consultant, the venerable E Sreedharan of the Delhi metro, who had been kept in the dark, cried foul. He said that this was nothing but a real-estate decoy, that a ‘deal’ had been struck to extend the metro’s proposed route, and that Raju, with insider information, was cornering land along the extension.
Sreedharan’s assertions—true as they were—bounced off Teflon Raju. But then the global slowdown washed up on the shores of India. Land prices hollowed out, as did share prices. Once pledged at around Rs 800 a piece, Satyam shares were now much less, and moneylenders began to reel in the credit line. This time, Raju had nothing and no one to turn to. His shares were a pile of paper, the land holdings a vast brown elephant. The son of the soil was ultimately done in by his overweening greed for land.
Independent director on the Satyam Board T. R. Prasad wants to wait as the “shocking developments” are still unfolding in the company, while the single largest stakeholder Aberdeen Asset Management company preferred silence.
Mr. Prasad said: “The unfolding developments in the company are shocking. I cannot comment at this juncture. Let the situation unfold and we will know more.” ISB Dean M. Rammohan Rao, who resigned as independent director recently, said: “It has been deeply disturbing for me to read the news reports this morning. I am stunned by this revelation.”
Adrian Lim of Aberdeen Asset Management Company declined to comment. ICICI Prudential Life Insurance, the third single largest stakeholder in Satyam, said: “This certainly is an unprecedented event. As a long term fund manager, we have strong risk management controls which ensure that there is adequate diversification in the portfolio with negligible concentration risk at any point of time.”
The Associated Chambers of Commerce and Industry of India (ASSOCHAM) has expressed “deep shock and disappointment” over financial irregularities that happened at Satyam Computers and suggested setting up of a special committee to investigate the entire issue so that culprits are identified and brought to book.
IDC Country manager Kapil Dev Singh foresaw wider connotations for the industry in general and IT/ITeS industry in particular. The series of incidents is quite shocking in the face of what appeared to be an impeccable company and source of hope and aspirations for the stakeholders until a few months ago. “The term ‘business ethics’ has never been so badly abused in India as this incident,” he said.
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