Satyam fiasco

As i was cooking my afternoon lunch, i just read that the Rajus had for a considerable period off time been cooking their books bigtime (most corporates do cook their books) and B R Raju came out in an open letter to the companies shareholders about the said mess… somewhat like Bernie Madoff. Satyam books inflated of Rs 5040cr MC .

Photograph: PK/Reuters

The Auditors PWC, the Company Secretary, the top management and its CAs and the independent directors have  also to be held accountable for such a glaring falsification if Rajus statement is true. Heck even the SEBI and CLB should be in the docks for such poor oversight…
I suspect, there is more to it than meets the eye that says that they overstated profits that too showing it as cash lying in a current account for the last couple of years… also
Satyam’s operating margin of 3% over stated as 24% also seems suspect.This seems too easy and there is a lot more news that one should expect. This could also be a case of theft and embezzlement or plain and simple diversion of funds.

As it was listed in the US , one must expect class action lawsuits from the relatively speedy US justice system, and it wont be easy for the Rajus to scuttle investigations with hush money to authorities as it is usually done. But this is an election year and however good their relations with the AP govt maybe the politicians might not want to take the risk. Plus the Punishment for such white collar crimes that play with 50000 employee and thousands of shareholder lives  is lax and slow to come thanks to our creaking judicial system and these people can still live comfortable vip lives in prisons thanks to money power.

Not many international cos follow Infosys management standards and most indian corporates are greedy …

Raju and co were never that reputed in the first place and Maytas the mirror image of satyam or satyam spelt reverse, was their baby under threat thanks to recession and an expected prop mkt crash. In any case they had a very low leveraged stake as the promoters has pledged the entire holdings over a period of time since September 2006 and milked Satyam for their personal benefit at every chance they got.

Sadly  the management – including independent directors Mendu Rammohan Rao, Dean, Indian School of Business, Hyderabad,‘Father of Pentium’ Vinod Dham, former Cabinet Secretary TR Prasad and Harvard Business School professor and governance expert Krishna Palepu, was unanimous during the talks of the Maytas takeover…

It shows how low the standards have fallen, and how indepedent directors operate.

Some say this is Indias Enron…. and why not ? People owning Satyam have lost nearly 78% and are expected to loose even more as the mkts fall along with Sayam stock today….

Satyam was a K10 stock a darling of the big Bull Ketan Parekh, but public memory about poor management is very shortlived especially in boom times. Could this have been forseen ? some did .. Like the Reliance MF and many others who sold after the recent Maytas episode.

I think management style and especially the attitude of Mutual funds and and FIs and FIIs on corporate governance should seriously change and takeovers should be welcomed, especially if the managements behavior is unbecoming and their stakes well below 10% that too leveraged to the hilt.


9 thoughts on “Satyam fiasco

  1. Wasnt he Very politically connected and secured contracts for some metro rail from the current congress state govt?
    plus rumor has it that as the property boom turned to bust with elections up ahead the politicians wanted hard cash instead of land, and that he didnt have thanks to maytas ipo being shelved.

    ps Raju is awol and the govt hasnt even put him under house arrest somehow reminding me of another hydrabadi bank – The GTB and the Gelli episode.

  2. Do u remember global trust bank and how rbi had behaved , first before the bank failed rbi had said that it was a very safe bank .after doing an audit and all.. then suddenly it failed and the shareholders got nothing
    gellis had very good contacts in the prev andra govt of naidu who had a strong hold on the upa

    its a shame that it took 60 hrs for the govt to act making everyone suspect what went on in the background for so long a time
    Now it looks like the govt is nationalising satyam ,,, god knows if shareholders will get anything
    i dont expect much out of a govt that has shown its incompetence in most cases and expect rajus to walk out once the issue is in the thanda basta …

  3. In this case especially, since the Government’s interests are closely related to Raju’s, we cannot expect a fair trial. But thanks to media, atleast they cannot get away with gross injustice without the fear of being reported.

    Destination Infinity

  4. @ Prax : I agree with you that government has not taken steps that it could have taken sooner enough, however I see nothing wrong with nationalisation of a scandal hit company. If the government has failed to play out its role as a regulator it must foot the bill. Someone has to take some responsibility somewhere. If this company was simply allowed to collapse it would have had much wider ramifications. Shareholder interest is secondary in this case. The first and the foremost step should be to preserve the company and then dispose it off to pay back the tax payer. The employees and the clients should be protected at any cost.

    When people invest in markets they should usually do so on the basis of sound research but they should also understand that there is a possibility of losing their capital. Shareholder interest is therefore not paramount at all.

  5. Oedzar,
    I would like to disagree here
    There are many cos that need rescue and i firmly think it is not govt business or best interests to rescue businesses , but rather focus on core issues like development and law and order which seem to be on the lowest priority list…

    The facts here point otherwise and there is something murky and underhand going on to help andhra govts survival …

    I agree about investing risks but fraud and profit skimming so blatant is not one of the risks that one can account for …

    Secondly free enterprise cannot survive without investor funds, and such things will make investment climate very unfriendly and worsen the situation for the country in general.

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