World Bank confirms it has banned Satyam4 min read . Updated: 24 Dec 2008, 12:07 AM IST
World Bank confirms it has banned Satyam
World Bank confirms it has banned Satyam
Hyderabad: Raising renewed questions about Satyam Computer Services Ltd’s credibility, the World Bank has finally confirmed a three-month-old report that India’s fourth largest information technology company has been barred, starting September, from doing work for the high-profile client.
The confirmation came on the heels of a US Fox News investigation that cited a senior World Bank official and a Washington, DC-based non-governmental organization discussing the ban.
“The World Bank debarment—the harshest sanction the world’s largest anti-poverty agency has imposed on any company since 2004—was meted out for ‘improper benefits to bank staff’ and ‘lack of documentation on invoices’, according to Robert," said Fox News.
Quoting from the Pulley conversation with GAP, Fox News also reported the Satyam case had been turned over to the US justice department in 2006 as well as to the US treasury department.
While Mint couldn’t independently verify those actions, the bank’s spokesman in India, Sudip Mazumdar, told Mint that “the quotes used of Robert Van Pulley by Fox News (are) accurate." News agency Reuters also reported that the World Bank had confirmed the Fox News story.
In October, when news of the World Bank action first surfaced in a Fox News report, Satyam issued a statement saying: “The story that claims Satyam was involved in an alleged security breach at the World Bank has no validity. Satyam takes this matter very seriously. We hold ourselves to the highest standards in the industry, and we take extraordinary care to develop secure networks and IT infrastructure for all our clients."
On Tuesday, a Satyam spokesperson insisted that the company wouldn’t comment because it “does not want to comment on individual clients".
Satyam did acknowledge a part of the Fox report that said its five-year contract, worth as much as $100 million (about Rs485 crore), was not renewed in September, but it again declined to elaborate, citing “company policy of not disclosing contractual information".
This is the second time in a week that Satyam’s management has hidden behind alleged client confidentiality to refuse information.
Since last Wednesday, when Satyam’s management aborted a short-lived plan to buy two infrastructure and real estate firms for $1.6 billion following huge investor backlash, the company has refused to say how it came to that Rs7,658 crore deal valuation, claiming that it couldn’t name the consultant that provided the valuation, after initially stating it was a so-called Big Four firm.
But all of India’s Big Four firms—KPMG, PricewaterhouseCoopers, Deloitte and Ernst and Young—have told Mint that they were not involved in that valuation.
Satyam’s management says the consultant has a non-disclosure agreement in place. Mint couldn’t independently verify the existence of such an agreement.
Such unanswered questions have significantly hurt Satyam’s shares as investors believe that its management tried to enrich chairman B. Ramalinga Raju’s family in the plan to buy Maytas Properties Pvt. Ltd and Maytas Infra Ltd, both promoted by Raju’s sons, under the pretext of business diversification.
Satyam’s management also claimed that the valuation as well as the transaction were both approved by the company’s board, but at least two independent directors have since told Mint that the board hadn’t fully signed off on a final deal, as announced by Satyam after markets closed on Tuesday a week ago.
Hours before that announcement, Satyam’s shares had closed on the Bombay Stock Exchange at Rs226.50 a share, giving the company a market capitalization of Rs15,254 crore. On Tuesday, Satyam’s market capitalization stood at Rs9,455 crore, a loss of Rs5,799 crore. Amid an overall fall in the market on Tuesday, Satyam’s shares plunged, in part because of the World Bank news, closing at Rs140.40 a share, down 13.55% to a new 52-week low.
Asked about the latest allegations, Fidelity Fund Management Private Ltd spokesperson Anjali Patil reiterated a previous statement on Satyam from the fund house:
“Fidelity strongly believes that the rights of all shareholders should be appropriately protected and we expect the companies that we are investing in to meet high standards of disclosure and to practice good corporate governance."
With a 3.42% stake in Satyam, Fidelity is the second largest public share holder in that company after Aberdeen Asset Managers Ltd, whic holds a 3.53% stake.
The original Fox News story in October, based on a leaked email from a senior World Bank official, had reported that: “Investigators (at the World Bank) discovered that spy software was covertly installed on workstations inside the bank’s Washington headquarters—allegedly by one or more contractors from Satyam, one of India’s largest IT companies".
The bank also first denied that it had banned Satyam.
Now with the bank confirming the Fox report, new questions are being raised as to whether Satyam, whose shares are also listed in the US, should have informed stock exchanges about that development.
Fox News said legal experts it consulted say that the “debarment by the World Bank should have been announced by the company to its shareholders immediately and also filed with the US Securities and Exchange Commission."