what a day to begin a blog on finance and accounts. The Satyam promoter- Chairman has resigned, confessing fraud. It would be interesting to read how a widely held company with FII's and PE investors holding more than 51% could allow few people to perpetrate this kind of a fraud. Internal control will be the buzz word again.read the text of raju's letter
07 Jan 2009 10:53AM HP LASERJET FAX
To the Board of DirectorsSatyam Computer Services Ltd.
From
B. Ramalinga Raju
Chairman
Satyam Computer Services Ltd.
Dear Board Members,
It is with deep regret, and tremendous burden that Iam carrying on my conscience,that I would like to bring the following facts to your notice:
1. The Balance Sheet carries as of September 2008
a. inflated (non-existent) cash and bank balances of Rs.5040crore (as against Rs. 5361 crore reflected in the books)
b. An accrued interest of Rs. 376 crore which is non-existent
b. An understated liability of Rs. 11230 crore on account of funds arranged by me.
c.An over stated debtors position of Rs. 490 crore (as againstRs. 2651 reflected in the books). For the September quarter (Q2) we reported a revenue of Rs.2,700 crore and an operating margin of Rs. 649 crore (24% Ofrevenues) as against the actual revenues of Rs. 2,112 crore and an actual operating margin of Rs. 61 Crore ( 3% 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 hasarisen purely on account of inflatedprofits over a period of last several years (limited only to Satyamstandalone, 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 company operations grew significantly (annualized revenue run rate of Rs. 11,276crore in the September quarter, 2008 and official reserves of Rs. 8,392crore). The differential in the real profits and the one reflected in thebooks was further accentuated by the tact that the company had to carry additional resources and assets to justify higher level of operations -thereby significantly increasing the costs. Every attempt made to eliminate the gap failed. As the promoters helda small percentage of equity, the concern was that poor performance would result in a take-over, 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 canbe delayed. But that was not to be.
What followed in the last severaldays is common knowledge.
I would like the Board to know:, :
1. That neither myself, nor the Managing Director (including ourspouses) 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 wasarranged to Satyam (not reflected in the books of Satyam) to keepthe operations going by resorting to pledging all the promotershares and raising funds from known sources by giving all kinds ofassurances (Statement enclosed, only to the members of theboard). Significant dividend. payments, acquisitions, capitalexpenditure to provide for, growth did not help matters. Everyattempt was made to keep the wheel moving and to ensureprompt payment of salaries to the associates. The last straw wasthe selling ofmost of the pledgeq share by the lenders on accountof margin triggers.
3. That neither me, nor the Managing Director took even onerupee/dollar from the company and have not benefitted infinancial terms on account of the inflated results.
4. None of the board members, pastor present, had any knowledgeof the situation in which the company is placed. Even businessleaders and senior executives in the companv,. such as, RamMynampati, Subu D, T.R. Anand} Keshab Panda,VirenderAgarwal,A.S. Murthy, Hari T, .5V Krishnan, ViJay Prasad, Manish Mehta,Murali V, Sriram Papanij Kiran Kavale, Joe. Lagioia, RavindraPenumetsa, Jayaraman andPrabhakarGupta are unaware of thereal situation as against the books of accounts. None of my orManaging Director's immediate or extended family members hasany idea about these issues.,' ..Having put these facts before you, I leave it to thewisdom of the boardto take the matters forward. Howeverl I am also taking the liberty to recommend the following steps:
1. A Task Force has been formed in the last few days to addressthe situation arising out of the failed Maytas acquisitionattempt. This consists of some of the most accomplisgshed leaders of Satyam: Subu D/T.R. Anand, Keshab Panda andVirender Agarwal I representing business functions,· and A.S.Murthy, Hari T and Murali V representing support functions. Isuggest that Ram Mynampati be made the Chairman of thisTask Force to immediately address some of the operationalmatters on hand, Ram can also act as an interim CEO reportingto 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 twenty years now. I have seen it grow from few people to 53,000people, with 185 Fortune 500 companies as customers and operationsin 66 countries. Satyam has established an excellent leadership andcompetency base at all levels. I 'sincerely apologize to all Satyamites andstakeholders, who have made Satyam a special organization, for thecurrent situation. I am confidentthey will stand by the company in thishour of crisis.In light of the abovel I fe~vently appeal to the boa rd to hold together totake some important steps. Mr. T.R. Prasad is well placed to mobilizesupport from the government at this crucial time. With the hope thatmembers of the Task Force and the financial advisor, Merrill lynch(now Bank of America) will stand by the company at this crucial hour, Iam marking copies of this statement to· them as well.Under the circumstances, I. am tendering my resignation as thechairman of Satyam and shall continue in this position only till suchtime the current board is expanded. My continuance is just to ensureenhancement of the board over the next several days or as early aspossible. , am now prepared to subJect myself to the laws of the land and face consequences thereof.
Ramalinga Raju
Copies marked to:
1. Chairman SEBI
2. Stock Exchanges