MUMBAI: Satyam Computer Services Ltd’S Mr. B Ramalinga Raju has tendered his resignation as chairman of the company. Reacting to the news, shares Satyam's board members
of the IT company were down 62 per cent at Rs 64. Also, immediately following the news, DSP Merrill Lynch has terminated its engagement with the company.
Raju will continue in the position only till such time the current board is expanded.
In a letter to the board of directors, Raju states that Satyam’s balance sheet as on Sep 30, 2008, carries an inflated (non-existent) cash and bank balances of Rs 5,040 crore (as against Rs 5,361 reflected in the books).
Further, it carries 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 me. An over stated debtors position of Rs 490 crore (as against Rs 2,651 crore in the books).
For the second quarter ended Sep 30, 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 has resulted in artificial cash and bank balances going up by Rs 588 crore in the second quarter alone.
The letter further states that the gap in the balance sheet has arisen purely on account of inflated profits over a period of last several years (limited only to Satyam standalone, 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 (annualised revenue run rate of Rs 11,276 crore in the September quarter of 2008 and official reserves of Rs 8,392 crore).
As the promoters held a small percentage of equity, the concern was that poor performance would result in a takeover, thereby exposing the gap. The aborted Maytas acquisition deal was the last attempt to fill the fictitious assets with real ones.
To quote: “It was like riding a tiger, not knowing how to get off without being eaten.”
A task force comprising imminent members such as Subu D, TR Anand, Keshab Panda and Virendra Agarwal and AS Murthy, Hari T and Murli V has been formed in the last few days to address the situation arising out of the failed Maytas acquisition attempt.
Ram Mynampati would be made the Chairman of this task force to immediately address some of the operational matters on hand. Merrill Lynch would be entrusted with the task of exploring some merger opportunities.
In the letter, Raju has apologised to all Satyamites and stakeholders for the current situation.
Raju says that neither he nor the managing director sold any shares in the last eight years except a small proportion sold for philanthropic purposes.
A net amount of Rs 1,230 crore was arranged to Satyam (not reflected in the books) to keep operations going by resorting to pledging all the promoter shares and raising funds from known sources by giving all kinds of assurances. Significant dividend payments, acquisitions, capital expenditure to provide growth did not help matters. Every attempt was made to keep the wheel moving and to ensure prompt payment of salaries to the associates. The last straw was the selling of most of the pledged shares by the lenders on account of margin triggers.
Raju also acknowledged that neither he nor the managing director took have benefited in financial terms on account of the inflated results. He confessed that non of the board members had any knowledge of the situation in which the company is placed