Wednesday, 7 January 2009

Satyam’s Raju resigns and coughs up to false accounting

(By Anthony Miller) Earlier this morning Satyam’s founding chairman, B. Ramalinga Raju, tendered his resignation in a letter (see here, via India’s Economic Times website) in which he also admitted to cooking the books. The letter alludes, among other things, to inflated cash balances and profits to the extent that the Sept. ’08 operating margin, reported as 24%, was in reality only 3%. Raju said that the falsification had been ongoing for some years. He claims that he never personally profited from the inflated accounts and that no other board member or executive was involved or even aware. He described the long-term cover-up as "like riding a tiger, not knowing how to get off without being eaten". Satyam’s shares have crashed by over 70% on the Indian exchanges.

Readers will know our views on Mr Raju in prior comments (most recent here). This development is even more startling than I could have imagined and will take an age to untangle. Raju’s claims of “it was just me, gov” stretch credibility sorely given that Raju’s own brother, B. Rama Raju (“Ramu”), is Satyam’s MD and the business has for some time been in effect controlled by a triumvirate comprising Raju, Ramu and COO, Ram Mynampati. However, that is not for us to determine, thank goodness.

What upsets me most is the effect this will have on Satyam’s businesses around the world, especially here in the UK and in Europe. I have said before that I have held Satyam in high esteem. Just a few months ago I met many of Satyam’s UK and European management (see here) and heard glowing reports from key clients. There is also a small risk that other leading Indian SIs will be irrationally tarred with the same brush, though judging by Indian stock market reaction, this has fortunately not been the case, at least with investors. This is a sad, sad, day for Satyam and for the Indian offshore services industry.

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