Satyam Computers –The Fallout of Scam

satyam Mr. Ramalinga Raju may feel relieved after removing the burden of fraud he was carrying on his conscience after he sent a shocking statement of his confession of Intentional misstatement of Company’s Financials, he has put a whole lot of Investing Community worried on the state of affairs. 

Following are the equations that emerged out of today’s sensational revelation-

  • Major Institution Investors have exited out of the company. Some like Fidelity were lucky enough to exit at good price.

 

    • Aberdeen International sold 3.6 crore shares (5.3%) at Rs 42.6 per share and exits completely from Satyam computers

 

    • Swiss Finance, 100% sub of UBS AG sold 1.37 crore shares at Rs 80 per share and exit Satyam

 

    • Fidelity Investment sold 40 lac shares at Rs 108.96 per share.

 

    • Morgan Stanley sold 47.7 lac shares at Rs 68.68 per share.

 

  • Satyam’s ADR was quoting at 0.85 Cents in Pre-market quotes down by 91% from previous close of 9.35 dollars. The trading of Satyam ADR has been suspended.

 

  • Satyam Fraud has left a deep scar on the corporate governance practices in India. It would definitely put brakes on FII Investments in Mid segment companies where the quality and transparency of management still needs to be pulled up.

 

  • Investment Guru expect the Mid cap stocks to continue to bear the burnt of Satyam fraud in the coming days as these stocks get discounted for the higher risk of corporate governance issues.

 

  • With the exposed financials, the company is left with just 360 crore of cash in its balances sheet. This is going to start a series of cash crunch activities within the organization. The company may find it difficult even to pay salary to its staff. The 50K plus employees of the company must be under tremendous stress and sense of uncertainty. The company may witness large scale drain of its human resource to rival firms.

 

  • Satyam Computers may also see exodus of its clients as they move to other companies post the fraud.

 

  • The Auditors of Satyam Computers, Price Water House Coopers (PWC) will be under scrutiny for failure to detect the irregularities in the financials which was allegedly being carried out for last several years. Questions are being raised on auditors knowledge of the ongoing fraud in the company.

 

  • The National Stock Exchange (NSE) has removed Satyam Computer Services from the Nifty Index with effect from January 12, 2009. Satyam, the NSE said, will be replaced by Reliance Capital

 

  • The Survival of Satyam looks bleak. It will be difficult for the company to find buyers with virtually no assets on its balance sheet. The stock price tomorrow may be end up in single digit. This may signify collapse of  Satyam Computers. It would be interesting to see how the government intervenes to save the future of thousands of satyam employees and the image of corporate India.

 

There are still questions looming large on the whole Satyam story and Raju’s confession.

  • Mr. Raju’s statement that only he was aware of the ongoing fraud and no body else in the board was aware of it looks like a blatant lie.

 

  • His statement that he did not personally benefitted from the whole misstatement and it was done just to save satyam  from takeover threat and loss of customers does not get down the throat.

 

  • IL&FS sold 2.45 crore shares of satyam in last 15 days. This raises question on violation of Insider Trading norms as it looks that the company had some indications of the impeding danger.

 

  • The world bank had banned Satyam for 8 years on charges of spying on Bank’s systems. This gave a hint that something was wrong at the helm of affairs of the company.

 

  • Around 3000 employees of the company posted their resumes on the Job portals. This shows that the employees had a hint of wrong doings happening at Satyam and were concerned of its future.

There may be some more stunning revelations as the regulators start investigation into the scam and unearth the whole story. Meanwhile it is high time that the India Inc. take serious stock of its corporate governance and strengthen it to reinforce the confidence among the Investors.

Some Surprise Moves

Another thing worth watching today was the list of losers in today’s fall. Though the fall was majorly attributed to the Satyam Scam, many companies came under the fire. Is it a Red flag for these companies in terms of corporate governance risks ?

losers

Companies like Suzlon Energy, Unitech, reliance Communications and DLF were among the Top Losers along with Satyam. does this mean that Real Estate companies are being touted as ones that may have Corporate Governance Issues. It may be too early to comment on this, however today’s fall in these stocks have left some food for thought.

Inclusion of Suzlon Energy and Reliance communication to the list is also surprising. As I said above, the Midcap counters may come under pressure on corporate governance perception of these companies or cross holdings of the promoters of such companies.

However, the satyam debacle resulted in Infosys Scrip gaining 1.63% on hopes of it gaining on account of business lost by Satyam. It can be also termed as reward for good corporate governance image of Infosys.

 

Hot from the Press

Perhaps Ramalinga Raju is lying again- Live mint

This statement about low operating margin doesn’t quite seem to add up. Perhaps Raju is lying again—if he has been doing it for so many years, there’s no reason why we should accept his entire confessional statement as gospel truth. Read More

Satyam fraud: What should existing investors do now –Economic Times

Investment bank CLSA has said that the value of Satyam stock in current conditions is about Rs 25-30. However, some analysts feel the stock is worthless as the scale of fraud is not yet known.

Satyam employees fear for jobs – Financial Express

Holes exposed in independent directors' roles – Business Standard

Satyam Computers Website

3 comments:

Dinesh said...

If we go by Sector, real estate is one sector where one can find gross corporate mis-governance.

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