Hyderabad / Bangalore: Removing the fig leaf that its embattled management had actually followed proper governance and disclosure practices for recommending a $1.6 billion (Rs7,808 crore today) deal which investors quickly saw as an egregious case of corporate self-dealing, three more independent directors on the board of Satyam Computer Services Ltd resigned.
In a day of fast moving developments that sharply underscored the mounting woes of Satyam chairman and promoter B. Ramalinga Raju, the company confirmed that some shares owned by its promoters and pledged against borrowings had been sold by lenders, further diluting a fairly small 8.6% stake of the Raju family.
And India’s fourth largest computer services company contradicted itself once more by admitting it failed to meet a key deadline set by the Registrar of Companies (RoC) to provide information that it had sought on a 16 December board meeting where the deal was discussed. Over the weekend, a Satyam spokesperson had claimed that a 27 December story by Mint that the company would indeed miss the deadline as a “rumour”.
Director’s cut: Executive MD of venture firm NEA-Indo US Ventures Vinod Dham, dean of Indian School of Business M. Ramamohan Rao (Bharat Sai / Mint) and professor at Harvard Business School Krishna Palepu Business Today).
On Monday, Satyam’s company secretary and head of corporate governance G. Jayaraman said, “The minutes of board meeting held on 16 December are not yet approved by the board members and in the absence of certified copy of minutes of board meeting, we cannot submit the details that RoC wanted us to.”
Mint couldn’t immediately ascertain if the RoC would grant an extension. The serious nature of Satyam’s problems was further underscored on Monday when the Union government said it would refer the controversial transaction proposed by Satyam management to the Serious Frauds Investigation Office (SFIO) if the RoC detects major irregularities during its investigation into the issue.
“If the RoC and regional director say that the case is of serious nature, and a serious fraud has been committed, it will be referred to the SFIO,” an unnamed corporate affairs ministry official told PTI. The same official said the issue could also be sent to the Company Law Board, a quasi-judicial body that also looks into the working of companies in the interest of minority shareholders.
On 16 December, Satyam’s management unveiled two related transactions to buy Maytas Infra Ltd and Maytas Properties Ltd citing the need to diversify. Both firms are promoted by the family of Satyam chairman Raju. Within 12 hours, Satyam abandoned the deal as its overseas stock listing took an unprecedented pounding. The company’s India-listed shares have lost 40% since then.
The company, which claimed the transactions and the prices to be paid, were approved unanimously by its board, has struggled to explain how it agreed to pay that hefty amount. Meanwhile, amid intense media scrutiny, a united facade by board members has completely cracked with several directors issuing statements that have raised more doubts about how management pushed through the transaction.
A day after he gave his first extensive interview to the media and insisted that Satyam’s board will look at potentially replacing Raju, if necessary, as part of a sweeping review of what went wrong, news emerged that Vinod Dham, the well-regarded executive managing director of venture firm NEA-Indo US Ventures, had resigned, citing current circumstances at the company. He was joined by Krishna Palepu a professor at Harvard Business School who claimed an inability to attend recently frequent board meetings.
Hours later Satyam confirmed that M. Ramamohan Rao, dean of the Indian School of Business who had staunchly defended the board’s actions, but has since come under intense pressure to justify his behaviour, had also resigned. Rao claimed in his resignation that his busy academic schedule at ISB now prevents him from attending frequent board meetings.
The three joined Mangalam Srinivasan, who resigned last week, taking “moral” responsibility. None of the directors who resigned could be independently reached for comment.
Satyam’s nine-member board was to meet on Monday but over the weekend the company rescheduled the meeting to 10 January before the spate of resignations. It now has five directors, including two independent directors.
In a statement, Raju said a board reconstitution would be a key agenda item at the 10 January meeting.
Another independent director, V.S. Raju, told Mint that he will take a decision after the next board meeting. “We will discuss in the board meeting and take appropriate actions”, he said.
On Monday, Satyam also informed the Bombay Stock Exchange that its promoters had pledged all their shares in the company held by SRSR Holding Pvt. Ltd with institutional lenders over a period of time since September 2006. The company said some of the shares pledged by promoters might have already been liquidated by the lenders but didn’t provide additional details.
“We (have) sought the details from the promoters and are still awaiting data from them,” said T. Hari, head of global communications at Satyam.
The promoter stake size is critical because any reduction further reduces the ability of Raju family to try operate Satyam as business as usual.
Hari refused to comment on a report by CNBC TV18 that the promoters pledged some 55 million shares with the lenders, some of which had been sold reducing the stake 3.5-4% from 8.6%.
Separately, a National Stock Exchange announcement noted that IL&FS Trust Co. Ltd sold 6.05 million shares of Satyam at Rs120.09 a share on December 24 and 4.41 million at Rs139.83 a share on 29 December through bulk deals.
Satyam’s shares did rise 9.41% to close at Rs148.25 a share on Monday. The shares touched a high of Rs159.60 around 2.30pm, taking a cue from earlier statements by Dham in Mint about possible changes in Satyam management, but started losing ground as soon as news of Dham’s resignation came out.
“The shares rallied earlier in the day on the hopes a board restructuring and Dham being in charge. But following the news of Dham quitting, the stock shed some of what it had gained and closed lower,” Anil Advani, head of research at SBICAP Securities Ltd.
“We believe that given the high institutional shareholding in the company (at 62%) induction of some credible names who also enjoy the confidence of the institutional shareholders would be a step in the right direction,” wrote analysts Manik Taneja and Sweta Sinha of Emkay Research, a Mumbai-based equity research firm. “Given the likelihood of a further reduction in the promoter stake, we believe that the possibility of a takeover attempt by either a strategic or a financial investor might increase.”
Satyam said the promoters informed the company on 27 December on the possibility of their stake in the company being reduced as a result of institutional lenders liquidating the shares pledged with them at their discretion to cover margin calls.