GCC Boom has ended?

The global financial turmoil has ended the boom cycle in most GCC states, research by Gulf Finance House (GFH) said. The steep fall in oil prices from their peak last summer, output contraction across other key economic sectors, tight liquidity conditions and the fall in asset prices will make 2009 a challenging year for the GCC. The fallout from the global financial crisis, coupled with the plunge in oil prices, has effectively ended the six-year economic boom which began in 2003 on the back of high oil prices that allowed strong government and private spending. The hydrocarbons export revenues are likely to fall by about 60 per cent to $200 billion (Dh734bn).
The outlook for various sectors are
Banking: Most GCC banks will see profit contractions as a result of slower growth in business volumes. Some banks will need to recapitalize or merge, and, in the process, cut back on credit expansion to improve capital adequacy metrics.
Petrochemicals: Downside risks remain high in the petrochemicals sector due to the build-up of excess global production capacity, declining global demand, lower prices and higher financing costs.
Real estate: Anecdotal evidence suggests that speculators are unable to exit long positions except after a long period and at significant discounts. In this environment, property flippers will be obliged to hold on to property and meet payment obligations, raising the likelihood of an increase in default rates in 2009.
Construction: The weakness in the GCC construction sector is a natural outcome of the weakness in the real estate sector, which will suffer from delays or cancellations and tighter access to credit.
Telecom: Although profitability growth of telecom companies will likely decelerate in 2009 due to already-high penetration rates, slower growth in subscription and intensifying competition relatively strong profitability and cash flow metrics present a buffer.

Contributed by Rajesh

IFRS - Primter

Comparison-USGAAP,IGAAP, IFRS

View more presentations or upload your own.

Destiny's Child

When Yo-Y-ma and Itzhak Perlman played out a musical tribute at the Presidential oath of Barack Obama, the camera panned on to 2 million hopeful faces which had come to hear his address to the nation.

With my sleepy son on the lap I also watched it with great hope and expectation that this man could rewrite the destiny of the world. He started off fumbling and toned downthe expectation hinting at the enormity of issues at hand, but moved on saying we will work with 'hope over fear'. In fact hope has been the central theme of his address. I could distinctly count the word 'hope' being repeated 6 times over the address.

So lets hope and pray that the destiny's child is able to deliver sustainable change.

Weekly News Round up

The newly appointed board of satyam seeks to appoint an investment bank to find a possible suitor for Satyam. The names doing round are those of Goldman, JP Morgan and Deutsche Bank.

ARCIL plans to float a fund of US$ 600 Mio for stressed assets and is expected to close in Mar 09.

FII stake continue to wane in blue chip stocks. For the quarter ended Dec 08, the combined dilution of interests in 16 SENSEX stocks is 23%.

Unitech seeks shareholder approval to raise Rs. 5000 crores in an EGM to tide through the current liquidity crisis. Earlier this week, IFCI sold 17.5 million shares of the Delhi-based realty developer the National Stock Exchange.

New year is raining reduction in PLR by banks in India. The latest announcements are from Central Bank & Vijaya Bank who have reduced its PLR to 12.5% and 12.75% respectively.

Contributed by Salil

While regulators where sleeping

The press has been slamming the Independent Directors, the CEO and CFO of Satyam for the financial impropriety. If you look at the regulatory framework for listed companies in India as well as in the US, it is quite scary to note that the SEC (with its powerful Sarbanes Oxley) the SEBI and BSE (with a very tight Listing agreement) has not paid any attention to review compliance with the corporate governance codes defined under the regulations. It would be intersting to see how the ICAI peer review would have looked at audit practice for accounts like Satyam, particularly when no defenitive actions were taken after the Global Trust Bank scandal.

So where do investors and users of financial statements derive comfort of Internal Control from?I guess only the quality of entrepreneurs and ethical values can help us on that.

That takes me to my favourite subject (Philosophy), every investor needs to be like a yogi,who is awake in his sleep (people out there please help - is that what the ICAI motto meaning!!).

What is Happening to Andhrapreneurship

First it was Nagarjuna courting controversy, then came the Satyam story the result has been significant damage to the cult of Andhrapreneurship. Between 5th Jan 2009 & 13th Jan 2009, where nifty lost 6% some of the Iconic companies from Andhra had lost between 15% to 30% of its market cap.

Market has heavily discounted the values owing to suspect business value systems. The chart on this post has tried to capture this erosion on a simple graph.

Hope that the Andhrapreneurs will be back!

Corporate Governance - Basics

As a practice corporate governance assumes importance for widely held or publicly held (listed) companies largely from the perspective that the independent investors (including retail investors) interests are protected on three dimensions.

1. Operations are carried on diligently
   
2. Financial results are reliable
3. Business is compliant with the applicable laws
   

The deployment of good corporate governance practice vary from

• Separating the Role of the CEO and Chairman
• Bringing in Independent Directors on the board
• Independent Audit committee
• Remuneration committee to evaluate the remuneration of the Key Management
  

A these measures are designed to allay any potential risks on the integrity and fidelity of the management of the business.

After thought

Why am i writing this, i had a strange feeling that Raju will die in custody. I have no investment in Satyam (ever had), never done any work for or with Satyam but was feeling really bad that a small town dreamer got nailed by ambition.

Lesson for a lot of dreamers, is not to get carried away and never play to galleries.

dream on

Richard Fuld - who?

Yes, for the uninformed he was the CEO of Lehman when it went bankrupt, he was the Chairman & CEO of Lehman ever since 1994. A week before Lehman a 158 year old financial institution went bankrupt Fuld had claimed that Lehman was fully capitalised.

Does he have an accountability for Lehman, for bringing down the worlds financial markets and destroying billions of dollars of small investor wealth.

How different is his crime from that of Ramalinga Raju? Keep watching the space.

Day After

As expected the so called leaders of the industry sat in judgement of Ramalinga Raju of Satyam. Truth is many of them have not been caught yet, many of them have done it and we have forgotten it.

The only way to creating reliable financial statements is by detaching business management from sales management. In the ego of toplines and higher market caps and short career shelf lives CEO's & CFO's are corrupted, pressurised and very often lured by big money to fudge figures. Unfortunately the accounting profession is still in kindergarten trying hard to figure out how to set a framework of reporting in a multi timezone, multi currency, multi discplinarian and highly complex business environment where day to day events are hitting on the boundaries of fundamental principles of going concern & materiality.

India is not an exception, it is a world wide phenomenon and like we forgot Enron & worldcom, so will we forget Satyam?

Satyameva Jayeta

Corporate Governance - Mea Culpa

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

On your Mark

Its 7.40 in the morning kids are getting ready for school and i have managed to set this up. The big Idea behind this blog is to create a collaborative community for Finance and Accounting professionals.

so its now to all of us to get going...