New Delhi: The Centre on Thursday paved the way for the sale of fraud-hit Satyam Computer Services Ltd, although three critical questions remain to be answered: When? For how much? And to whom?
Responding to an application by the firm’s government-appointed board, the Company Law Board (CLB), the apex regulator of companies, allowed Satyam to proceed with a stake sale through an open competitive bidding process.
The government also allowed the firm to raise its authorized share capital to Rs280 crore through the issue of 600 million fresh shares of Rs2 each. Satyam’s current authorized share capital is Rs160 crore.
CLB permitted the firm to make a preferential allotment of at least 26% of its equity, either at par or a premium. Analysts said the winning bidder will then have to make an open offer for 20% more of the company’s shares in keeping with Indian laws. They added that this would also provide an exit route for Satyam’s minority shareholders.
For sale: The final decision on the process will likely be taken at the Satyam board meeting tomorrow. Reuters
The final decision on the process to be followed for a stake sale will likely be taken on Saturday, when Satyam’s board meets in Hyderabad. The company’s global head of corporate communications T. Hari said this would definitely be “one of the many points that will be discussed in the next board meeting”.
CLB’s order, delivered by its chairman S. Balasubramanian, also said Satyam could induct a strategic investor, provided this is within the country’s takeover rules. It, however, added that Satyam would need an approval from CLB before actually issuing shares to the chosen strategic investor.
“The process of selecting a strategic investor will be done in an absolutely transparent manner so that shareholders, employees and customers get full justice,” said Prem Chand Gupta, Union minister for corporate affairs.
Satyam’s board has received bids from several suitors, including Larsen and Toubro Ltd, which has already acquired a 12% stake in the firm. However, this is unlikely to give the Mumbai-based engineering firm an advantage in the bidding process, where all firms will have to bid for the entire quantum of shares on offer.
Tech Mahindra Ltd, B.K. Modi’s Spice group and the Hinduja Group have also expressed their interest in the firm.
The strategic stake sale could mark the beginning of the endgame of the Satyam saga that began on 16 December when the company’s board approved the acquisition of two firms promoted by founder B. Ramalinga Raju’s family, Maytas Properties Ltd and Maytas Infra Ltd. The board backtracked a day later in the wake of shareholder protests. Satyam then appointed DSP Merrill Lynch to advise it on ways to improve shareholder value.
In early January, Merrill Lynch terminated its engagement with Satyam and wrote to stock exchanges and the stock market regulator that it had unearthed “material differences” in the company’s books of accounts from numbers that had been publicly stated. A day later, Raju wrote to the company’s board confessing that he had, over the years, fudged Satyam’s books to the tune of at least Rs7,136 crore. He, his brother and Satyam’s then managing director B. Rama Raju, and chief financial officer (CFO) Srinivas Vadlamani were arrested as were, subsequently, two auditors from Price Waterhouse, who had signed off on Satyam’s books. Several arms of the government launched an investigation into the affair and the government dismissed the Satyam board and replaced it with its own board headed by Kiran Karnik, a former head of software lobby group Nasscom.
The new board has since sought to reassure clients and staff, raise money for working capital, appointed new auditors to restate accounts and worked towards attracting a strategic investor who could take a significant stake and management control in Satyam.
In the race
Following CLB’s announcement, Modi, chairman of the Spice group, told television channel CNBC-TV18 that he would prefer to buy a 51% stake in Satyam directly. Prabal Banerji, CFO of the Hinduja Group, said that while his group would prefer a 51% stake, it was fine with a 26% plus 20% open offer formula, if that was what was on offer. Tech Mahindra’s head of international operations C.P. Gurnani told CNBC-TV18 that his firm would need more information on Satyam—the number of clients, the exact nature of its liabilities, among others —before it could even decide if it wanted to put in a bid.
That’s the kind of information any bidder would want on Satyam and earlier this week it emerged that it would take some time before this would become available. Audit firm KPMG, which along with Deloitte is restating Satyam’s accounts, said it could take it as much as six months to do so. Still, Satyam’s shares continue to be traded. They ended Thursday on the Bombay Stock Exchange at Rs46.25 each, down 88.6% from 15 December.
Analysts said the share price could provide a rough and ready benchmark for the sale price.
India’s stock market regulator has expressed its willingness to consider amending regulations to facilitate the takeover of companies that have seen a sudden and irregular fall in their share price. Under current takeover laws, open offers for shares have to be priced at the average of the stock’s closing price over the previous six months—a formula that makes no sense in the case of Satyam, whose shares have plunged 74% since 7 January.
The Satyam fraud is being investigated, among others, by India’s apex investigative agency, the Central Bureau of Investigation, and the ministry of corporate affairs’ Serious Fraud Investigation Office (SFIO). SFIO is looking at the role of around 25 members of the Raju family and around 325 firms through which the family ran its various businesses.
Meanwhile, the government has asked CLB to dissolve the board of Maytas Infra even as investigative agencies seek to find out whether money from Satyam was routed to fund Maytas’ real estate purchases. And accounting body Institute of Chartered Accountants of India said it would investigate the role of SR Batliboi and Associates, Maytas Infra’s auditors. SR Batliboi is an arm of Ernst and Young.
Mint’s C.R. Sukumar in Hyderabad, Reuters, AFP, Bloomberg and PTI contributed to this story.