Satyam shares seen gaining as new board meets

Satyam shares seen gaining as new board meets
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First Published: Mon, Jan 12 2009. 09 20 AM IST
Updated: Mon, Jan 12 2009. 09 20 AM IST
By Reuters
Hyderabad: Shares in Satyam Computer Services Ltd could jump 20-30% on Monday after the government stepped in to appoint a three-man board in a bid to restore confidence in the outsourcing company rocked by the country’s biggest corporate scandal.
The board will meet at Satyam headquarters in the southern city of Hyderabad from 9:30 a.m. (0400 GMT) to lay out a roadmap for clients and staff in the wake of a billion dollar fraud that has cast a cloud over foreign investment in Asia’s third-largest economy and over its once-booming outsourcing sector.
Neeraj Dewan, director at Quantum Securities in New Delhi forecast Satyam shares would rise sharply in early trade, boosted by the government’s moves to bring in new faces to run India’s fourth-largest software services exporter.
“It will shoot up initially because of the new board, the kind of people they have on the board, but may not keep on going unless there is clarity on their business, margins,” Dewan said.
Deepak Parekh, one of the appointees, said late on 11 January 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.
The other members are Kiran Karnik, former president of the National Association of Software and Service Companies, a technology lobbying group, and C. Achutan, a former official at the Securities and Exchange Board of India (Sebi), the 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.”
V.K. 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, has 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 United States on behalf of investors who bought Satyam American Depositary Receipts (ADRs) since 2004.
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First Published: Mon, Jan 12 2009. 09 20 AM IST
More Topics: Satyam | Shares | Hyderabad | New Board | Deepak Parekh |