Hyderabad/Bangalore: Day 2 of the Satyam Computer Services Ltd scandal saw the newly-inducted leadership team of a once proud company fighting to save face and business, even as the Andhra Pradesh government said it would review contracts awarded to the software company’s associate, two US law firms filed class action suits, and at least three people associated with the company or its affiliates resigned.
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Meanwhile, with cash running low, the company could possibly default on payments and probably find it difficult to pay the salaries of its 53,000 employees.
The only good news for the firm was that the Indian stock markets were closed on account of a religious festival on Thursday and Satyam’s stock, which fell 77.7% to Rs39.95 on Wednesday on the Bombay Stock Exchange, couldn’t fall any further. On Thursday, trading in the company’s shares stayed suspended on the New York Stock Exchange (NYSE), just as they had been on Wednesday.
Satyam’s interim chief executive Ram Mynampati told journalists that the current liquidity position of the firm is “not at all encouraging” and added that “we are confident of meeting the salaries of some 53,000 employees for December, but not sure of January”.
Struggle for survival: Satyam’s interim chief executive Ram Mynampati on Thursday said that the company may need to borrow cash to meet some of its outstanding payment commitments. Bharat Sai / Mint
He said that the company may need to borrow cash to meet some of its outstanding payment commitments.
Mynampati also said that Satyam’s chief financial officer (CFO) Srinivas Vadlamani has submitted his resignation, which the board would consider at its 10 January meeting.
It is unclear if any bank or financial institution will lend money to Satyam. Indian laws also make a takeover of the company expensive. The stock’s average price over the past six months is Rs330 and that over the past two weeks, Rs176. India’s stock market regulator Securities and Exchange Board of India (Sebi) mandates that any takeover offer should be the higher of the two numbers.
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The new leadership team, Mynampati said, has accorded top priority to addressing various legal issues, which are expected to unfold. It has “written to the regulatory authorities and various industry associations for assistance to identify candidates to be new members of Satyam’s board”. He also added that the company had been talking to customers.
Meanwhile, the special investigation team of Sebi reached Hyderabad and began its investigation into the company, which probably doesn’t have the money to defend itself should charges be framed against it. At least two law firms have initiated class action law suits against Satyam in the US, with a third firm evaluating the potential of a similar suit.
New York-based law firm of Vianale and Vianale Llp. filed a class action lawsuit against Satyam on 7 January on behalf of purchasers of Satyam’s American depository shares listed on NYSE. The action is pending in the Manhattan federal court.
Another law firm, Izard Nobel Llp. filed a lawsuit against Satyam, on behalf of investors, in the US district court for the southern district of New York, seeking class action status.
A third law firm, Law Offices of Howard G. Smith announced that it is “investigating potential claims against Satyam” for possible securities violations.
In India, the minister of corporate affairs Prem Chand Gupta said he had asked the country’s apex audit body to take the “strictest possible” action against Satyam’s auditor Price Waterhouse (an arm of PricewaterhouseCoopers).
In a statement, the audit firm claimed the audits were conducted “in accordance with applicable auditing standards and were supported by appropriate audit evidence. “Given our obligations for client confidentiality, it is not possible for us to comment upon the alleged irregularities. Price Waterhouse will fully meet its obligations to cooperate with the regulators and others.”
Mynampati said Price Waterhouse would audit the company’ financial results for the third quarter ended December, which will be announced before the end of January. “We will evaluate the results so as to ascertain whether there will be any need for re-auditing.” He added that “based on the assessment of books of accounts”, the company could consider appointing a new auditor.
Apart from CFO Vadlamani, Thursday saw the resignation of Maytas Infra Ltd chairman R.C. Sinha, who cited personal reasons for his exit, and Mednu Rammohan Rao, the dean of the Indian School of Business (ISB), who recently stepped down as an independent director of Satyam.
The promoters of Satyam have a 36% stake in Maytas and the unravelling of the company’s accounts began with an aborted attempt by the computer firm to take over the infrastructure firm in mid-December. Rao had chaired the December board meeting in which Satyam agreed to buy Maytas before abandoning the plan in the face of opposition from shareholders and investors.
The premier business school ISB said a search committee has been constituted to find a replacement for Rao until which deputy dean Ajit Rangnekar would hold charge.
“Unfortunately, yesterday’s (Wednesday’s) shocking revelations, of which I had absolutely no prior knowledge, mean that we are far from seeing the end of the controversy surrounding Satyam Computers,” Rao said in his resignation letter. “My continued concern and preoccupation with the evolving situation are impacting my role as dean of ISB at a critical time for the school. Given that my term with the ISB anyway ends in a few months, I think that this is an appropriate time for me to step down.”
The repercussions of the accounting scam at Satyam were also felt by projects undertaken by Maytas Infra. The Andhra Pradesh government has decided to review the financial capabilities of Maytas to execute the Rs12,312 crore Hyderabad Metro rail project awarded to a consortium of firms led by the company.
The “state government has decided to examine the financial capabilities of Maytas Infra in the backdrop of confessions on fudging of accounts by Satyam chairman Ramalinga Raju and on the speculation on the financial muscle of Maytas Infra,” said N.V.S. Reddy, managing director of Hyderabad Metro Rail Ltd.
Meanwhile, another partner in the consortium said that other partners could increase their holding in the event of Maytas not being able to execute the project.
Collateral damage: M. Rammohan Rao (left), who has already stepped down as an independent director of Satyam, resigned as dean of the Indian School of Business on Thursday. Satyam chief financial officer Srinivas Vadlamani has also submitted his resignation. Bharat Sai / Mint and Bloomberg
P. Trivikram Prasad, executive director of Nava Bharat Ventures Ltd, which was originally the lead partner in the consortium, said: “We will take a call on the issue based on what the state government decides on the project. If it turns out to be the question of financial capability of Maytas Infra, then the other consortium partners will discuss among them and explore possibilities, which include one of the partners in the consortium stepping up their holding.”
Maytas Infra’s CFO V.V. Rama Raju downplayed the review. “Nothing has changed for us. It is only the perception on our company has changed now, raising all kinds of doubts on our financial capabilities to execute the project.”
“Maytas Infra is a publicly listed, separate and independent company run by a strong professional management team. Developments at Satyam do not impact operations of Maytas Infra and it is business as usual,” a company spokesperson later said in a statement.
Another Maytas project that might get affected is the proposed deep-water port at Machilipatnam in Andhra Pradesh. Maytas holds a 40% stake in Vajra Seaport Ltd, the entity set up to develop the Machilipatnam port.
Following Satyam’s fall from grace, many global and local dredging companies are hesitant to apply for a Rs900 crore contract to dredge the port’s channel fearing that they might not be paid for services rendered.
In 2007, the Andhra Pradesh government had given the rights to develop and operate the project to a consortium of Maytas Infra, Nagarjuna Construction Co. Ltd, SREI Infrastructure Finance Ltd and Sarat Chatterjee and Co. for a 30-year period beginning 2010.
Graphics by Ahmed Raza Khan / Mint