Bangalore: The chairman of embattled Satyam Computer Services resigned on Wednesday and said the company’s profits had been inflated over the last several years, sending the stock down 60%.
The shocking revelation comes after India’s fourth-largest outsourcer’s botched attempt last month to buy two construction firms in which the company’s founders held stakes and key customer World Bank dropping its ties with the outsourcing company.
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“The gap in the balance sheet has arisen purely on account of inflated profits over a period of last several years,” Satyam Chairman Ramalinga Raju said in a statement to stock exchanges on Wednesday.
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Satyam’s woes make it one of India’s most high-profile company scandals in recent years. The comments from Satyam sent Indian equity markets in a tailspin, with Bombay’s main benchmark index falling 3.9%.
Web Exclusive | Satyam Computer Services Ltd: Balance Sheet
Raju has written: “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: The Balance Sheet carries as of 30 September, 2008, a) Inflated (non-existent) cash and bank balances of Rs 5,040 crore (as against Rs 5,361 crore reflected in the books); b) An accrued interest of Rs 376 crore, which is non-existent.
Satyam, which specialises in business software and back-office services for clients such as General Electric, and Nestle, was due to hold a board meeting on 10 January to consider a buyback following a rash of broker downgrades even after the acquisitions were called off.
“I think there is no future for this stock. This case for India is similar to what happened to Enron in the US,” said Jigar Shah, senior vice-president at Kim Eng Securities.
“It will not stop at Satyam. Many more companies will come into scrutiny like that. There is a strong possibility investments in India will be affected,” he said.
Raju has admitted that the Maytas acquisition deal was the promoters’ last attempt to fill the gaps on company’s balance sheets.
“I sincerely apologise to all Satyamites and stakeholders, who have made Satyam a special organisation, for the current situation,” B Ramalinga Raju said in a notice sent to the stock exchanges.
“I am now prepared to subject myself to the laws of the land and face consequences thereof,” Raju said.
He will continue in the position till the company’s board is expanded, according to a statement sent to BSE. Meanwhile, Ram Myanpati will act as interim CEO.
Also while Raju recommended DSP Merrill Lynch be entrusted the task of “quickly exploring some merger opportunities,” the company informed the stock exchanges that the investment banker has terminated its engagement with Satyam