Satyam Scandal

BY VEENASHREE K PG11102

Contents
O Introduction

O Maytas Infra
O Buyout deal O Justification for the deal O Investors reaction O What went wrong? O How the balance sheet was inflated?

O Comparison of actual balances and

inflated balances O Copy of detailed letter O Who is responsible? O Consequences O Solutions O Eventually O Bibliography

Introduction
O Satyam Computer Services Ltd. is a

consulting and information technology services company based in Hyderabad, India O It was found in 1987 by B.Ramalinga Raju O The company was listed with New York Stock Exchange, National stock Exchange and the Mumbai Stock Exchange

O Satyam's network covers 67 countries across six

continents. O The company employs 40,000 IT professionals across development centres in India, the United States, the United Kingdom, the UAE, Canada, Hungary, Singapore, Malaysia, China, Japan, Egypt and Australia. O It serves over 654 global companies, 185 of which are Fortune 500 corporations.

Maytas Infra
O The company is run by the sons of Ramalinga

Raju O It was started in the late 1980s by Ramalinga Raju Maytas Properties Ltd O One of the reasons for the debacle of Maytas properties is the ongoing economic slowdown O The company has huge land banks and the prices have dropped down in the real estate significantly

Buyout deal
O Satyam was planning to buy the shares of

Maytas Infra and Maytas Properties Ltd. O Company announced Acquisition of 51% stake in Maytas Infra and 100% stake in Maytas Properties

Justification for the deal

O The integrated organization would be stronger

and more diversified to deal with the uncertainty of the market. O Feeling that in the recent times it is difficult to make a strategic deal with other IT companies

Investors reaction
O The deal was accepted by the board , but not

by the investors. O The deal was not profitable for investors O Investors dumped Satyams stock and threatened action against the management

O This was the high time for the company and Mr. Raju

had to reveal the secret behind the acquisition of the Maytas O Thus, Mr. Raju confessed the irregularities that took place in the company. O He wrote a letter to the Board of the Company stating the irregularities.

What went wrong?

O The scam took place primarily on account of

inflated profits and revenues over a period that lasted several years starting in April 1999 O Another factor was, Satyam, as the smallest of the big players, was under pressure to show extraordinary results in order to survive. O His rise to stardom in the corporate world coupled with immense pressure to impress investors made Mr. Raju a compelled leader to deliver outstanding results.

How the balance sheet was inflated?

o Never had Rs 5064 Crores (US$ 1.05 Billion)

shown as cash for several years. o Its liability was understated by $ 1.23 Billions o The Debtors were overstated by 400 millions plus. o The interest accrued and receivable by 376 Millions never existed

Comparison of actual balances and inflated balances

Items Actual balances (Rs.Crores) Balances after window dressing (Rs. Crores)
2651.36 5312.62 376.34

Differences (Rs. Crores)

Sundry Debtors 2161.00 Cash And Bank 321 Balances Interest Accrued on Fixed Deposits Liabilities Operating Profits Nil

490.36(overstated) 4991.62(overstated) 376.34(overstated)

2166.05 61

1230 649

936.05(understated) 588(overstated)

Copy of detailed letter

LETTER WRITTEN BY MR. RAJU

Who is responsible?
O The responsibility for a case like Satyam scam

to happen is due to people involved in three levels

O Individual, Corporate and Societal.

Individual level
O Mr. Ramalinga Raju, who is the master mind

behind the Satyam scam is personally responsible for the saga at individual level. It is his greed that led him to resort to unethical and illegal behavior

Corporate level
O Top management of the company O Auditors have to check final statement and

verify it but, PWC failed to do so O PwC was paid 3.53 crore for the year 2008 as compared to 1 crore paid by Infosys as auditing fee O ICICI Bank, HDFC Bank, Bank of Baroda, etc. the bank statement and certificates were forged O SEBI in December 2008 gave a clean chit to Satyam in the probe on violation of corporate governance law

Societal level
O The institutional investor community, retail investors

none of them, including professional investors with detailed information and models available to them, detected the malfeasance
O Satyam was the 2008 winner of the coveted Golden

Peacock Award for Corporate Governance under Risk Management and Compliance Issues, the same year that the scam came out shortly afterwards. This raises serious questions on the expertise of thee valuation committee and the award itself
O Government should have been able to detect the

manipulation of financial statements through effective policies and regulations

Consequences
O Before the scandal the share prices of the

company was Rs. 300,but after the scandal it went down to Rs. 11.50 O After the Scandal the Company Law Board decided to bar the current board of Satyam from functioning O New York stock exchange halted trading

Solutions
O Reconstitution of the board :-

Restore the management of the company and appoint some reputed people as the board of directors Try building confidence in the clients to get back the lost projects. O The image of the company could be revived by a series of press conferences highlighting the ongoing contracts with the clients. O It could also be merged with any other software company

Eventually
O Tech Mahindra wins the bid
O Tech Mahindra paid Rs1757 crore for a 31%

stake in the company, or Rs 58 per share

Bibliography
O http://www.scribd.com/doc/48238268/Satyam
O http://uk.reuters.com/article/2009/01/07/satya

m-text-idUKBOM36807220090107 O http://www.slideshare.net/KamaljeetSingh3/sat yam-scam-9772598 O http://www.scribd.com/doc/16782318/CaseStudy-of-Satyam-Scam