Satyam:A day after Raju’s disclosures

DAMAGE CONTROL: CO FAILS TO CLEAR THE AIR

THE BITTER TRUTH

A day after Raju's disclosures, interim CEO Ram Mynampati said Satyam is dealing with a crisis of "unimaginable proportions". And with the doubts piling up, the govt and regulators stepped up the pressure
Cash-starved co running against time

Our Bureaus HYDERABAD/MUMBAI

    THE team tasked with saving Satyam Computer Services on Thursday said the company is in desperate need of cash, but provided few details about how much emergency money is needed, or how it plans to get the funds.
    Interim CEO Ram Mynampati, the head of the crisis management team, said strenuous efforts are being made to prevent clients and staff from deserting the company and ascertain its exact financial status.
    "Today, I do not know if we have money to pay salaries for January. I will know shortly. We will need some assistance and are trying to get an assessment of assets and receivables," Mr Mynampati said.
    An investment banker is also due to be appointed to finalise strategic options, including a merger or outright sale. But with Satyam facing class-action lawsuits in the US, it is not clear how many takers there will be for the company.
    The absence of any buyer means that the Satyam saga could continue for a while, with its concomitant fallout on the image of Corporate India. "Satyam is a company listed on the US exchanges, with US clients and subject to the jurisdiction of US regulators. It would be wrong and misleading to describe it as a purely Indian scandal," said the CEO of a major Indian company who requested anonymity.
    One possible buyer could be L&T, the country's largest engineering company. A source close to L&T said the government should take steps to restore confidence in the employees and clients of Satyam. These steps may include appointment of a select group of persons in the interim board to access the liabilities, fix them and then, hand the company over to a competent IT firm. "But Satyam should not be given to one of the top three IT companies. In that case, it will lose its identity," he said.
    "We will examine the matter if shareholders of Satyam approach us," said a senior L&T executive, who asked not to be named.
THE BIG QUESTIONS QCan we trust Ram Mynampati ?
The interim CEO and other senior officials were all part of a team headed by B Ramalinga Raju. They are yet to file a complaint and question PwC, despite Mr Raju's confession. Somewhere there's an uncanny similarity with another Hyderabad company — the now defunct Global Trust Bank — where the boss stepped down and his lieutenants managed the show. QWho can take action
against Raju?
Separate teams from Sebi and the Registrar of Companies are investigating Satyam. Sebi is also probing PwC's role. But no criminal proceedings have been initiated till Thursday evening. Sebi and DCA are yet to file a complaint with the Andhra police while complaints by investors bodies can take a long time in India. QHow long can Satyam
stay afloat ?
Unless a strategic partner steps in, Satyam will find it difficult to persuade banks to keep working capital and credit lines open. In Mynampati's words, Satyam's "cash on hand position is not very encouraging." While the buzz is that L&T may put in a bid, any company would wait for a clearer picture to emerge and may be wary because of the prospect of class-action lawsuits. QWhat are financial
institutions doing?
FIs with equity holdings in Satyam are in touch with the regulators and central ministries to push through the appointment of 2-3 new independent directors. Some of the leading technocrats, former IT professionals, lawyers and CAs are being sounded out. FIs would like to call the shots in the constitution of the new board. L&T could play white knight if asked by govt
    THE list of Satyam shareholders include JP Morgan, Lazard, Citigroup, ICICI Prudential and LIC. Diversified L&T has a presence in the software business through its wholly-owned arm, L&T Infotech. "L&T will take a call when a right proposal comes in. We have not been yet approached by anyone," he added.
    It is learnt that a few investment bankers have approached L&T with proposals that it should consider taking over Satyam. L&T is now the largest shareholder in Satyam with a 4% stake, overtaking the promoters' 2.34% shareholding. L&T started buying into Satyam towards end-December and reportedly began picking up the stock at Rs 145.
    An investment banker said L&T is well-positioned to play the role of a white knight if it is asked to do so by the government. He said the issue was whether L&T would wish to acquire a company whose liabilities, including legal ones in the US, may be substantial. L&T may be interested if the company was available without its liabilities, he added. It was unclear how such a situation could arise. Satyam also faces a $1-billion claim from Upaid, a UK-based payment mobile services payment company, over allegations of fraud.
    At the press conference on Thursday, Satyam officials said an exercise is underway to assess the accuracy of the statements made by former chairman B Ramalinga Raju and an independent audit is being contemplated.
    The new Satyam boss revealed that CFO Srinivas Vadlamani had quit on Thursday, but that his resignation has not been accepted and the issue will be discussed at the board meeting on January 10.
    An interim CFO from within the company will be appointed, he said, adding that a restatement of accounts is a possibility.
    "We are legally bound to declare our thirdquarter results by the end of this month. Once we get our arms around reality, we will take a decision on this."
    Mr Raju resigned in disgrace on Wednesday after admitting that the company's accounts had been fudged, amounting to a hole of at least Rs 7,000 crore in its balance sheet.
    But the crisis management team was evasive about both Mr Raju and Mr Vadlamani, seen as the main architects of the financial fraud.
    Mr Mynampati was contradictory in his statements about Mr Vadlamani. First he said the CFO was not attending office because of personal reasons and would report to work next week. A few minutes later he revealed that the CFO had indeed submitted his resignation earlier in the day.
    In an explanation to why the company was not initiating criminal action against Mr Raju, he said there were other, more pressing priorities. Mr Mynampati said key employees of Satyam were in a conference call with Mr Raju soon after his admission of guilt but did not know about his whereabouts.
    Meanwhile, the company's much-criticised auditor PricewaterhouseCoopers has still not been removed and there has been no further contact with the firm, Mr Mynampati said.
    But an investigation team from market regulator Sebi has been quizzing officials at Satyam and the audit firm and scrutinising documents. "Mr Raju can face up to 10 years in prison and be fined up to Rs 25 crore. We have ordered an inquiry into the violation of corporate governance at Satyam," a Sebi official said.
    Mr Mynampati claimed he had no knowledge of the fraud at Satyam and said the company would cooperate fully with investigating agencies.
    AS Murthy, a member of the crisis team, tried to convince reporters that the company actually had over 50,000 staff and that the headcount, like the accounts, were not fictional. The company had 53,000 staff at the end of September and he estimated that there were some 2,000 less employees now.
    The Andhra Pradesh government ruled out providing funds to bail out Satyam, and a top official said on condition of anonymity that there was no discussion at all about what to do to salvage the IT firm, or save the thousands of jobs that depend on the company.
    Also on Thursday, Mendu Rammohan Rao, the man who chaired the controversial December 16 board meeting that approved the acquisitions of two companies linked to Mr Raju's family, stepped down as dean of the Indian School of Business saying his "continued concern and preoccupation with the evolving developments (at Satyam) were impacting his role as the ISB dean."