Satyam: Full text of Raju’s letter to the Board
To the Board of Directors
Satyam Computers Services Ltd.
From B. Ramalinga Raju
Chairman, Satyam Computer Servcies Ltd
Dear Board Members,
It is with deep regret, and tremendous burden that I am carrying on my conscience, that I would like to bring the following facts to your notice:
1. The balance sheet carries as of September 30, 2008
a) Inflated (non-existent) cash and bank balance of Rs 5,040 crore (as against Rs 5361 crore refglected in the books)
b) An accured interest of Rs 376 crore which is non-existent
c) An understated liability of Rs 1,230 crore on account of funds arranged by me
d) An over stated debtor position of Rs 490 crore (as against Rs 2651 reflected in the books)
2. For the September quarter (Q2) we reported a revenue of Rs 2,700 crore and an operating margin of Rs 649 crore (24 per cent of revenues) as against the actual revenues of Rs 2,112 crore and an actual operating margin of Rs 61 crore (3 per cent of revenue). This has resulted in artificial cash and bank balances going up by Rs 588 crore in Q2 alone.
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 the company operations grew significantly (annualized revenue run rate of Rs 11,276 crore in the September quarter, 2008 and official reserves of Rs 8.392 crore). 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.
Every attempt made to eliminate the gap failed. As the promoters held a small percentage of equity, the concern was the poor performance would result in a takeover, thereby exposing the gap. It was like riding a tiger, not knowing how to get off without being eaten.
The aborted Maytas acquisition deal was the last attempt to fill the fictitious assets with real ones. Maytas’ investors were convinced that this is a good divestment opportunity and a strategic fit. Once Satyam’s problem was solved, it was hoped that Maytas payments can be delayed. But that was not to be. What followed in the last several days is common knowledge.
I would like the board to know:
1. That neither myself, not the Managing Director(including our spouses) sold any shares in the last eight years-excepting for a small proportion declared and sold for philanthropic purposes.
2. That in the last two years a net amount of Rs 1,230 crore was arranged to Satyam (not reflected in the books of Satyam) to keep the operations going by resorting to pledging all the promoter shares and raising funds from know sources by giving all kinds of assurances (Statement enclosed, only to the members of the board). Significant dividend payments, acquisitions, capital expenditure to provide for 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 share by the lenders on account of margin triggers.
3. That neither me, nor the Managing Director took even one rupee/dollar from the company and have not benefitted in financial terms on account of the inflated results.
4. None of the board members, past or present, had any knowledge of the situation in which the company is placed. Even business leaders and senior executives in the company, such as Ram Mynampati, Subu D T R Anand, Kesab Panda, Virender Agarwal, A S Murthy, Hari T, S V Krishnan, Vijay Prasad, Manish Mehta, Murali V, Sriram Papani, Kiran Kavale, Joe Lagioia. Ravindra Penu Metsa, Jayaraman and Prabhakar Gupta are unaware of the real situation as against the books of accounts. None of my or managing directors immediate or extended family members has any ideas about these issues.
Having put the facts before you, I leave it to the wisdom of the board to take the matters forward. However, I am also taking the liberty to recommend the following steps:
1) A task force has been formed in the last few days to address the situation arising out of the failed Maytas acquisition attempt. This consists of some of the most accomplished leaders of Satyam: Subu D, T R Anand, Keshab Panda and Virender Aggarwal, representing business functions, and A.S.Murthy, Hari T and Murali V representing support functions. I suggest that Ram Mynampati be made the Chairman of this task force to immediately address some of the operational matters on hand. Ram can also act as an interim CEO reporting to the board.
2) Merrill Lynch can be entrusted with the task of quickly exploring some merger opportunities.
3) You may have a ‘restatement of accounts’ prepared by auditors in light of the facts that I have placed before you.
I have promoted and have been associated with Satyam for well over twenty years now. I have seen it grow from few people to 53,000 people, with 185 Fortune 500 companies as customers and operations in 66 countries. Satyam has an excellent leadership and competency base at all levels. I sincerely apologize to all Satyamites and stakeholders who have made Satyam a special organization, for the current situation. I am confident they will stand by the company in this hour of crisis.
in light of the above, I fervently appeal to the board to hold together to take some important steps. Mt T R Prasad is well placed to mobalize support from the government at this crucial time. With the hope that members of the Task Force and the financila advisor, Merrill Lynch (now Bank of America) will stand by the company at this crucial hour, I am marking copies of this statement to them as well.
Under the circumustances, I am tendering my resignation as the chairman of Satyam and shall continue in this position only till such time the current board is expanded. My contribution is just to ensure enhancement of the board over the next several days or as early as possible.
I am now prepared to subject myself to the laws of the land and fact the consequences thereof.
(B. Ramalinga Raju)
Copied marked to:
1) SEBI Chairman
2) Stock Exchanges
Source: Economic times website
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Comments
Guys can you imagine ..Satyam has won numerous awards for excellence in corp governance, including Golden Peacock Global Award twice, most recently in 2008
I have a CONTRA point here. Are we not being Naive by saying that Satyam or Raju are responsible for the biggest FRAUD in the Indian corporate history?
Do we not know how valuations of countless Indian companies are nothing more then a number which is a wish of the promoters and how the books are changed to show those numbers?
Do we not know how companies use the same figures to raise money from the stock markets?
Isn’t it a clear case of the person caught being a thief and till the time you are caught, you are the true gentleman? Unfortunately for Satyam, too many incidents unfolded at the same time and at the international level or else it would just have been a case of one off mistakes (so what if we make one off mistakes every quarter :-)).
I am not saying that what Satyam did was right or wrong but just want to remind everyone, this is the CORPORATE world and there are no saints here :-).
As someone said .. Ethics is the price that you pay in business. I have another question… who is the next satyam ???
I completely second Manav’s thoughts…
On the contrary I guess we must follow our ethics first than greed…
I guess there is more to come…
This letter made it to most desk tops with an hour of its release. Now that is the power of connectivity!
The Satyam scam could not have come at a worse moment. On the other hand the scam would not have surfaced but for this worse moment.
I have blogged on these lines in my blog.
Cheers!
further news from NDTV
Ramalinga Raju will spend at least another night in jail. The CID has got another day’s custody of Satyam’s former boss.
But the real extent of the Satyam rot is only just coming to light. The puclic prosecutor on Thursday told the court that Satyam may have faked at least 10,000 salary
accounts. The company actually employs 40,000 people, and not 53,000. Ten thousand employees were non-existent and 3,000 belong to attrition category.
CID sources told NDTV that Raju and the former Chief financial officer have confessed that they have been drawing the salary of the non-existent workers.
The public prosecutor also told the court that crores were possibly siphoned off every year, and diverted to benami accounts and that accounts were fudged, bank statements were forged and shares were transferred.
Meanwhile, SEBI’s petition to interrogate Raju also comes up for hearing on Thursday.
This is our own Madoff-equivalent. There may be many more such cases unbeknownst to investors in the Indian markets.