Mumbai/Hyderabad: Larsen and Toubro Ltd (L&T) has increased its stake in Satyam Computer Services Ltd even as a new suitor emerged for the beleaguered Hyderabad-based IT firm, whose new board is pulling out all stops in its efforts to raise much-needed working capital.
L&T, India’s leading private sector engineering conglomerate, has become the single largest shareholder of Satyam by raising its stake to 12%. On Friday, it acquired around 8% of the company’s equity from the market. The software firm has seen at least 78% erosion in its stock price since its former chairman B. Ramalinga Raju confessed to a Rs7,136 crore fraud on 7 January.
L&T acquired 39 million Satyam shares at an average price of Rs34.52 per share aggregating about Rs134.73 crore on the National Stock Exchange and another lot of 11.8 million shares from the Bombay Stock Exchange (BSE) at Rs35.07 each for an aggregate value of Rs41.69 crore. This is far less than what L&T had paid in December when it acquired its initial 4% stake in Satyam from the bourses for around Rs400 crore.
“We bought it today. There is a lot of corporate activity going on. We want to make sure our interests are covered,” Y.M. Deosthalee, L&T’s chief financial officer and a director on its board, told Reuters. “We are not asking for a board seat at the moment.”
Indeed, corporate activities surrounding Satyam Computer are mounting. On Friday, iGate Technologies expressed its interest in the company.
iGate Corp., the parent company of iGate Technologies, is reportedly in touch with a few private equity firms for a possible deal. “We would be interested in buying Satyam, assuming we can figure out what their liabilities are,” iGate’s chief executive Phaneesh Murthytold Reuters, adding that he would be deterred if liabilities exceeded $1.25 billion (Rs6,150 crore).
According to L&T’s spokesperson D. Morada, the objective behind buying Satyam stock from the open market is twofold. “By acquiring an additional stake in Satyam, we have managed to reduce the average cost of our acquisition substantially. We are also now the single largest shareholder in Satyam and this sufficiently large holding will help to protect our stake in the company.”
“It’s a big move, but nobody knows whether it’s the right move. There are too many ifs in Satyam. There are a lot of gaps in Satyam’s disclosures that are not available in the public domain,” said R. Balakrishnan, executive director at Centrum Capital Ltd, an investment bank. According to Balakrishnan, at this moment, “nobody would know what’s the right move” and he “presumes that L&T have done its homework well”.
At least two other analysts, attached to Mumbai-based brokerages and who did not want to be quoted, dubbed L&T’s move as “desperate”.
L&T will have to take a mark-to-market (MTM) hit in January-March quarter earnings following the sharp erosion in Satyam’s stock price. MTM is an accounting practice of valuing an asset in accordance with its market value and not the cost of its acquisition.
L&T started buying the shares after Satyam rolled back its decision to acquire Maytas Infra Ltd and Maytas Properties Ltd, two firms promoted by Raju’s family, after resistance from investors.
Investors were not very enthused by L&T’s latest bid to increase exposure. Several foreign institutional investors, including Lazard Asset Management Llc., Aberdeen Asset Managers Ltd, Swiss Finance Corp. (Mauritius) Ltd and The Boston Co. Asset Management Llc. have been liquidating their investments in Satyam even as L&T has been hiking its stake.
Shares of L&T lost 3.47%, or Rs23.05, to close at Rs640.85 each on Friday while those of Satyam Computer, riding on the huge volume of trade, gained 31.25%, or Rs9.25, to close at Rs38.85 on BSE, even as the exchange’s benchmark Sensex index lost 1.58%.
L&T’s board is meeting on 30 January to take into account the company’s October-December earnings.
None of its directors is willing to throw light on the latest development in the so-called silent period ahead of the meeting.
Incidentally, Life Insurance Corp. of India Ltd, the largest stakeholder in L&T, also holds about 4% stake in Satyam Computer.
Roadblock for Sebi
Meanwhile, capital market regulator Securities and Exchange Board of India’s (Sebi) investigation into the Rs7,136 crore scam has hit a roadblock, with a Hyderabad court rejecting its petition seeking custody of Ramalinga Raju, former managing director Rama Raju and former chief financial officer (CFO) Srinivas Vadlamani.
The Hyderabad court on Friday sent Raju brothers and Vadlamani to judicial custody till 31 January.
Hearing of bail petitions for Ramalinga Raju and Vadlamani was postponed to 27 January, while that of Rama Raju to 28 January.
In a related development, the Andhra Pradesh crime investigation department has arrested the general manager of SRSR Holdings Pvt. Ltd, D. Gopalakrishna Raju. SRSR was the company through which Raju and his family held shares in Satyam Computer.
The Satyam board, which concluded its two-day meeting on Friday, said the search for a CEO and a CFO has been narrowed down to a shortlist of three and that fund-raising talks are in final stages.
A formal announcement on funding “to tide over the ongoing requirements for operational expenses, including salaries and vendor payments”, is expected before 28 January, a company statement said.
PTI and Reuters contributed to this story.