Friday, January 09, 2009

(A)Satyam Fiasco

The turn of events at Satyam has gone progressively from bad to worse over the last few weeks culminating in the confession letter from the Chairman, B Ramalingam Raju. The independent directors have already fallen like nine pins with half the board having resigned even before the 'suicide' note sent by Raju.

However, what baffles most is the claims made in the letter itself. Even more than the fact that he did defraud the investors, what was baffling is that how system (investor scrutiny, a reputed independent auditor and scores of professionals in the company, all sworn to ethics by their affiliation to the association to the body of chartered accounts.

Add to that the disbelief that the company itself was poorly managed and the claim that the company made just 3 percent operating margin on revenues of over 2000 crores (Rs 20 Billion) in Q2 of FY09 while even smaller companies made margins between 12-15 percent. The larger ones infact make close to 30 percent margins.

So the fear is that Satyam actually made money (and cash) all these years and this has been siphoned off over the last few months or systematically over the years into either the the infra companies (Maytas infra and Maytas Properties)

The aborted Maytas deal was the first botched step to cover the tracks. The letter seems like a last ditch attempt to save the rest of the family (read the Raju sons) from ruin and from the law catching up with them and possibly other friends (read accomplices) at Satyam.

He, infact may be counting on the laxity in law enforcement in the country. The cases go on for years while he roams free on bail.

That he has damanged his reputation is a sad fact that would have happened anyways. Its unfortunate that he resorted to this. After all he is the man behind creating India's fourth largest IT services company.

The equity analysts have withdrawn their coverage on Satyam as they the accounts that they rely on now have no credibility

Banks have stopped relying on certificates issued by PWC. Even for other organizations. If the circle of Trust, the very basis of the finance has been broken we could all face anarchy.

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