Satyam's Ramalinga Raju Resigns as Chairman, Admits to Fraud
IT News Online Staff
2009-01-07
Ramalinga Raju, founder and chairman of Satyam Computers Services Ltd., has resigned from the company's Board after admitting a fraud of around Rs. 5,040 crore in the balance sheet of the company.
In a letter to the Board of Directors, Raju provided details of the inflated figures in the company's balance sheet. The balance sheet for September 30, 2008 has inflated (non-existent) cash and bank balances of Rs 5,040 crore, an accrued interest of Rs. 376 crore, which is non-existent, an understated liability of Rs. 1,230 crore on account of funds arranged by Raju and an overstated debtors position of Rs. 490 crore (as against Rs 2,651 reflected in the books).
For the second quarter ending in September 2008, the company reported a revenue of Rs. 2,700 crore and an operating margin of Rs. 649 crore (24% of revenues) as against the actual revenues of Rs. 2,112 crore and an actual operating margin of Rs. 61 crore (3% of revenues). This resulted in artificial cash and bank balances increasing by Rs. 588 crore in the second quarter.
Raju said the gap in the balance sheet had arisen on account of inflated profits over a period of last several years and 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 attained unmanageable proportions as the size of company operations grew significantly.
The differential in the real profits and the one reflected in the books was further accentuated by the fact that the company had to carry additional resources and assets to justify higher level of operations, thereby significantly increasing the costs. Raju said the aborted Maytas acquisition deal was the last attempt to fill the fictitious assets with real ones.
Satyam said Ramalinga Raju will continue as the company's Chairman, while Rama Raju will continue as Managing Director, only till such time the current board is expanded and the continuance is just to ensure enhancement of the Board over the next several days or as early as possible.
"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 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.
Satyam said its immediate priorities are to protect the interests of its shareholders, protect the careers and security of its approximately 53,000 associates, and meet all its commitments to its customers and suppliers.
"We recognize that our associates have committed a significant part of their careers to build Satyam. We will pursue all avenues to secure their future in the company," added Mynampati.
Satyam said it believes that its underlying business model, customer assets and growth prospects remain sound, even in the current challenging financial environment. The company's leadership expressed confidence that the company will be able to overcome this latest development and continue to provide excellent service to clients, while delivering value to shareholders in the medium to long term.
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