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Last Updated: August 8, 2015  2,215 views

The downfall of Satyam Computer Services

in: India

Satyam-development-Center.jpgSo one of the biggest frauds in the history of world has taken place. This time it is India and the culprit is Satyam. Do you know the meaning of Satyam. You will laugh. Satyam is a Sanskrit word whose meaning is ‘truth’. I am talking about Satyam Computer Services Ltd. which was a few days back one of the top 5 IT companies of India. It is a consulting and information technology services company based in Hyderabad, India. It was founded by B.Ramalinga Raju in 1987. The company offers information technology services spanning various sectors, and was listed on the New York Stock Exchange and Euronext. Satyam’s network covers 67 countries across six continents.

The company employs more than 50 thousand IT professionals across development centers in India, the United States, the United Kingdom, the United Arab Emirates, Canada, Hungary, Singapore, Malaysia, China, Japan, Egypt and Australia. In India its head office is in Hyderabad. It has other development centers in India at Bangalore, Chennai, Pune, Mumbai, Nagpur, Delhi, Kolkata, Bhubaneswar, and Visakhapatnam. It serves more than 654 global companies, 185 of which are Fortune 500 corporations. Satyam has strategic technology and marketing alliances with over 50 companies. It is also IT partner of FIFA for world cup football 2010 and 2014. It don’t know what will happen to that partnership now.

Satyam_Ramalinga_Raju.jpgDo you know what went wrong with Satyam? Let me tell you. On the 7th January 2009, the company Chairman Ramalinga Raju resigned after notifying its board members and the SEBI that he had falsified accounts. Ramalingam Raju affirmed in a letter to the board that neither he nor the managing director had benefited financially from the inflated revenues. He confessed that none of the board members had any knowledge of the situation in which the company was placed. He noted that Satyam’s balance sheet as on the 30th of September, 2008, carried inflated figures for cash and bank balances of Rs 5,040 crore (as against Rs 5,361 reflected in the books). Furthermore, it carried an accrued interest of Rs 376 crore which was non-existent. An understated liability of Rs 1,230 crore on account of funds was arranged by himself. An overstated debtors’ position of Rs 490 crore (as against Rs 2,651 crore in the books).

He stated that:

“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 company operations grew significantly (annualized revenue run rate of Rs 11,276 crore in the September quarter of 2008 and official reserves of Rs 8,392 crore). As the promoters held a small percentage of equity, the concern was that poor performance would result in a takeover, thereby exposing the gap. The aborted Maytas acquisition deal was the last attempt to fill the fictitious assets with real ones. It was like riding a tiger, not knowing how to get off without being eaten.”

Raju had appointed a task force in the last few days before revealing the news to address the situation. Satyam’s official website notes that

“We are obviously shocked by the contents of the letter. The senior leaders of Satyam stand united in their commitment to customers, associates, suppliers and all shareholders. We have gathered together at Hyderabad to strategize the way forward in light of this startling revelation” said Mr. Ram Mynampati, Interim CEO (pending ratification by the Board) and Member of the Board, who has been mandated by the Board to steer the company through this crisis.”

Immediately after this news, Merrill Lynch terminated its engagement with the company as Credit Suisse suspended its coverage of Satyam. It was also reported that Satyam’s auditing firm PricewaterhouseCoopers will be scrutinized for complicity in this scandal. The New York Stock Exchange has halted trading in Satyam stock as of January 7, 2009. India’s National Stock Exchange has announced that it will remove Satyam from its S&P CNX Nifty 50-share index from January 12.

So this is the story of downfall of Satyam. I will cover its impact on Indian IT industry and economy in the next article.

  • 1

    The downfall of sathyam has brought down the name of the Indian IT sector

    STEPHY on January 24th, 2009