Hyderabad: Shares in Satyam Computer Services Ltd jumped by two-thirds in early on Monday trading after the government stepped in to appoint a three-member board in a bid to restore confidence in the outsourcing firm rocked by India’s biggest corporate scandal.
The board is meeting at Satyam headquarters in the southern city of Hyderabad to lay out a roadmap for clients and staff in the wake of a billion dollar fraud that cast a cloud over foreign investment in Asia’s third-largest economy and over its once-booming outsourcing sector.
By 11.00am, shares in Satyam, which specialises in business software and offers back-office outsourcing services, were up 60% at Rs38.15 rupees, while the main Mumbai market was down more than 2%.
“The constitution of the new board is seen as a positive step by the market. It’s a confidence boosting measure,” said K.K. Mital, head of portfolio management services at Globe Capital in New Delhi.
“But the rally will depend largely on the financial situation at the company and the kind of measures that are taken to improve liquidity,” he said.
Deepak Parekh, a senior banker and one of the appointees, said late on Sunday the priority was to restore confidence and then look at financial issues such as restating accounts that the former chairman, since arrested, admitted had been falsified for years.
Parekh was due to hold a news conference at 5:00 pm.
The other board members are Kiran Karnik, who used to head a technology lobbying group, and C. Achutan, a former official at India’s market regulator.
“I think they will look at providing stability to employees and clients first. What they have to see in the next three months is that Satyam is still not bleeding,” said Avinash Vashistha, chief executive at consultancy Tholons.
“Also, we have to see if the government will extend some monetary support to Satyam to take care of salaries and all.”
VK Sharma, head of research at Anagram Stock Broking in Ahmedabad, said: “It will obviously give some confidence, but we have to see what kind of steps the new board takes.”
The accounting fraud, revealed by chairman and founder Ramalinga Raju last Wednesday in a stunning resignation letter, battered Satyam shares, with its market value plunging to $330 million at Friday’s close, against more than $7 billion just six months ago.
The fraud has hit Satyam’s business prospects amid growing fears that some clients may cancel contracts after Raju admitted Satyam had overstated profits for years and that 94% of the cash and bank balances at end-September did not exist.
Satyam, which employs 53,000 staff worldwide, faces a crisis of “unimaginable proportions”, stand-in CEO Ram Mynampati said last week, adding that liquidity was not very encouraging.
“The board members will look into whether Satyam can still operate as a separate entity or needs to be merged. But, for a merger, all legal and financial issues have to be settled first,” Tholons’ Vashistha said.
Satyam, also listed in New York, has welcomed the reconstitution of its board, saying it would ensure the company’s continued operations, help maintain customer confidence and staff morale and restore investor trust.
Raju and his brother, Rama Raju, have been charged with criminal conspiracy and forgery and are being held in a Hyderabad jail, along with chief financial officer Vadlamani Srinivas.
Several securities fraud class-action lawsuits have been filed in the US on behalf of investors who bought Satyam American Depositary Receipts (ADRs) since 2004.