Management mum, shares continue to fall

Management mum, shares continue to fall

Hyderabad: Shares of Satyam Computer Services Ltd continued a downward spiral that began after it aborted $1.6 billion twin acquisitions first announced on 16 December and then abandoned within 12 hours.

On Wednesday, Satyam shares initially dropped to five-year lows, as the company’s management continued to maintain a stoic silence on corporate governance questions, as well as the company’s actions at the World Bank where, it emerged that the company had been banned for eight years.

Satyam shares on the Bombay Stock Exchange closed at Rs134.95, down 3.88% on a day when the benchmark Sensex index, of which Satyam is a component, fell 1.2%. In intra-day trading, Satyam shares had fallen by as much as 18.3% with 40.4 million shares changing hands.

On 16 December with markets closed at Satyam’s shares having last traded at Rs226.50 a share, the company had announced the two acquisitions of infrastructure and real estate firms, promoted by the family of Satyam chairman Ramalinga Raju.

Amid instant shareholder furore, Satyam abandoned the deals though the company still maintains, despite refusing to say how it arrived at the valuation for the firms, that the proposed transactions were good for Satyam.

Satyam’s shares have steadily fallen even though the company said its board will meet on 29 December to consider a proposal to buy back shares from the market, an attempt to restore investor’s faith in the company.

“The valuations that Satyam stock is witnessing may be a bit too conservative but (are) not completely unjustified," said Apurva Shah, head of research at brokerage Prabhudas Lilladher.

“The events in the last 10 days have created an impression about the company that is at the root of the current market valuations of the stock. Skepticism among institutional investors is very high. It’s really tough to do anything that will undo the damage that has been done."

Shah said a possible reconstitution of Satyam’s board might help the company regain investor confidence, as “the current board has been completely discredited in the wake of decisions it made".

K.H. Viswanathan, executive director at audit and consultancy firm Mumbai-based RSM Astute Consulting Group, said Satyam’s corrective measures to address corporate governance concerns could include reconstitution of the company’s management and its board.

“However, as a first step, the management has to come out and admit that a mistake has been made and demonstrate that it is sincere about improving transparency," Viswanathan added.

The views were echoed by several analysts who also said Satyam’s credibility issues could start to impact its ability to win business.

Quoting from a research note to clients, research analyst Abhiram Eleswarapu of BNP Paribas Securities Pvt. Ltd told Mint: “Events (in the wake of Maytas-deal announcement) not only shows the company’s corporate governance in poor light, but also management’s lack of faith in the core IT services business."

Analysts, however, were skeptical about the possibility of quick recovery of the stock. “Given kind of damage that has been done, the process of recovery will be a long drawn out one," said Anil Advani, head of research at SBICAP Securities Ltd.

The World Bank reiterated that it had banned Satyam from doing work with the bank but added that “there is no evidence that Satyam was involved in malicious attacks on the Bank’s information systems".

But that clarification didn’t directly address news reports that Satyam had taken World Bank data. Satyam continued to decline comment on its role at the bank.