India hears calls for Satyam bailout
The giant outsourcing company Satyam Computer Services is struggling for survival after its founder, B. Ramalinga Raju, admitted to an enormous fraud, a battle that could put its 53,000 employees out of work. The company's demise may also disrupt operations like billing and computer systems at some of the largest companies in the world.
The scope and seriousness of the situation, coming as the red-hot Indian outsourcing industry starts to cool with the global economy, has prompted analysts and investors to suggest that the government should intervene.
"The question becomes: Will the Indian government step in or will the company be sold either as a whole or in pieces?," analysts from Forrester Research said in a note Friday.
"This is an election year, and there are a lot of considerations" for the government to think about at Satyam, including employees, investors and especially small investors, Sudin Apte, one author of the research report, said in an interview. Satyam might be able to continue until it finds a buyer with another $1 billion in cash, noted another analyst who did not want to be identified because his bank stopped covering Satyam when the fraud was revealed.
Indian officials acted quickly on Friday to try to shore up investor confidence in the company, removing its board members and pledging to appoint ten new directors shortly. The new board will hold a meeting within seven days, said Prem Chand Gupta, Minister for Corporate Affairs.
Satyam faces a liquidity crisis and may not have enough cash on hand to meet basic operating expenses like payroll as soon as this month.
A takeover is unlikely while questions still hang over the company's accounts, many bankers say, and it may be months before those questions are answered.
Regulators in India are delving into how and why Raju was able to fool auditors and investors for several years. India's market regulator, the Securities and Exchange Board of India, began an investigation Thursday into trading of the company's stock and on Friday met with Satyam's chief financial officer Srinivas Vadlamani. The Criminal Investigation Department of the police in the state of Andhra Pradesh, where Satyam is based, joined the investigation on Friday.
The market regulator said Friday that it planned to hold "peer reviews" of auditors' working papers of companies in the main stock indices, a move designed to increase overall confidence in publicly traded Indian companies. Chairman Chandrasekhar Bhaskar Bhave said the regulator needed to reassure investors that Satyam was a "one off phenomena."
Local politicians put pressure on top government officials to step in to save Satyam. YS Rajasekhar Reddy, the chief minister of Satyam's home state of Andhra Pradesh, asked Prime Minister Manmohan Singh in a letter Wednesday to put together a new management team to run the company.
Investors showed little faith in Satyam's chances; its shares fell 41 percent Friday on the Bombay Stock Exchange. Raju said Wednesday that he had fabricated $1 billion worth of cash and bank balances, nearly all of the company's cash assets. Shares fell 78 percent that day. The market was closed Thursday.
So far, the government is balking at the idea of bailing out Satyam.
"This is a corporate governance issue," said Rajeev Jain, a spokesman for the commerce ministry. The government is in "no position" to put cash into the company.
The Congress party government of India, which must hold general elections before a May deadline, has a tenuous hold over the country, and any decisions it makes on Satyam are expected to be challenged by its opposition.
The mood at the company's headquarters was grim. Pankaj Kumar, a software developer who has worked for the company for the past year and a half, said that employees were worried about layoffs. The worst thing was the lack of concrete information about the Satyam's financial position and its future. "There is too much rumor and speculation," he said.
If Satyam goes under, job losses will not be limited to India. As many as 30 percent of Satyam's employees, about 15,900 people, are located outside India, analysts estimate. Some of these employees are Indians on temporary assignments, while others are local citizens. A third group work for a string of companies that Satyam purchased during a buying spree.
Outsourcers like Satyam may once have operated from backrooms in Bangalore, but they have expanded in recent years into continent-spanning giants with offices near their clients and an appetite for international deals. One of Satyam's biggest overseas offices is in Princeton, New Jersey, analysts noted.
Satyam, the fourth-largest outsourcing company in India, went on a European and American buying spree in recent years that stretched from Boston to Belgium. In the first half of 2008 alone, the company struck deals for all or part of four small to mid-sized consultants and back-office firms, including Bridge Strategy Group of Chicago last January for $35 million.
On April 21, Satyam said it had agreed to buy all of the construction equipment company Caterpillar's market research and customer analytics business for $60 million in cash. That same day, Satyam said it would buy S&V Management Consultants, a Belgian supply chain management company with 60 consultants, for $35.5 million.
All of Satyam's businesses may be in peril. "If nothing happens in the next two to three weeks, clients as well as employees will desert the company," Apte of Forrester said.
Source: International Herald Tribune
The scope and seriousness of the situation, coming as the red-hot Indian outsourcing industry starts to cool with the global economy, has prompted analysts and investors to suggest that the government should intervene.
"The question becomes: Will the Indian government step in or will the company be sold either as a whole or in pieces?," analysts from Forrester Research said in a note Friday.
"This is an election year, and there are a lot of considerations" for the government to think about at Satyam, including employees, investors and especially small investors, Sudin Apte, one author of the research report, said in an interview. Satyam might be able to continue until it finds a buyer with another $1 billion in cash, noted another analyst who did not want to be identified because his bank stopped covering Satyam when the fraud was revealed.
Indian officials acted quickly on Friday to try to shore up investor confidence in the company, removing its board members and pledging to appoint ten new directors shortly. The new board will hold a meeting within seven days, said Prem Chand Gupta, Minister for Corporate Affairs.
Satyam faces a liquidity crisis and may not have enough cash on hand to meet basic operating expenses like payroll as soon as this month.
A takeover is unlikely while questions still hang over the company's accounts, many bankers say, and it may be months before those questions are answered.
Regulators in India are delving into how and why Raju was able to fool auditors and investors for several years. India's market regulator, the Securities and Exchange Board of India, began an investigation Thursday into trading of the company's stock and on Friday met with Satyam's chief financial officer Srinivas Vadlamani. The Criminal Investigation Department of the police in the state of Andhra Pradesh, where Satyam is based, joined the investigation on Friday.
The market regulator said Friday that it planned to hold "peer reviews" of auditors' working papers of companies in the main stock indices, a move designed to increase overall confidence in publicly traded Indian companies. Chairman Chandrasekhar Bhaskar Bhave said the regulator needed to reassure investors that Satyam was a "one off phenomena."
Local politicians put pressure on top government officials to step in to save Satyam. YS Rajasekhar Reddy, the chief minister of Satyam's home state of Andhra Pradesh, asked Prime Minister Manmohan Singh in a letter Wednesday to put together a new management team to run the company.
Investors showed little faith in Satyam's chances; its shares fell 41 percent Friday on the Bombay Stock Exchange. Raju said Wednesday that he had fabricated $1 billion worth of cash and bank balances, nearly all of the company's cash assets. Shares fell 78 percent that day. The market was closed Thursday.
So far, the government is balking at the idea of bailing out Satyam.
"This is a corporate governance issue," said Rajeev Jain, a spokesman for the commerce ministry. The government is in "no position" to put cash into the company.
The Congress party government of India, which must hold general elections before a May deadline, has a tenuous hold over the country, and any decisions it makes on Satyam are expected to be challenged by its opposition.
The mood at the company's headquarters was grim. Pankaj Kumar, a software developer who has worked for the company for the past year and a half, said that employees were worried about layoffs. The worst thing was the lack of concrete information about the Satyam's financial position and its future. "There is too much rumor and speculation," he said.
If Satyam goes under, job losses will not be limited to India. As many as 30 percent of Satyam's employees, about 15,900 people, are located outside India, analysts estimate. Some of these employees are Indians on temporary assignments, while others are local citizens. A third group work for a string of companies that Satyam purchased during a buying spree.
Outsourcers like Satyam may once have operated from backrooms in Bangalore, but they have expanded in recent years into continent-spanning giants with offices near their clients and an appetite for international deals. One of Satyam's biggest overseas offices is in Princeton, New Jersey, analysts noted.
Satyam, the fourth-largest outsourcing company in India, went on a European and American buying spree in recent years that stretched from Boston to Belgium. In the first half of 2008 alone, the company struck deals for all or part of four small to mid-sized consultants and back-office firms, including Bridge Strategy Group of Chicago last January for $35 million.
On April 21, Satyam said it had agreed to buy all of the construction equipment company Caterpillar's market research and customer analytics business for $60 million in cash. That same day, Satyam said it would buy S&V Management Consultants, a Belgian supply chain management company with 60 consultants, for $35.5 million.
All of Satyam's businesses may be in peril. "If nothing happens in the next two to three weeks, clients as well as employees will desert the company," Apte of Forrester said.
Source: International Herald Tribune
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