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Satyam - where is it?

Satyam has created history yesterday when its Chairman Mr Ramalinga Raju accepted the fact that his company's accounts are cooked up. Cooked up to the extent of some Rs7000 crores. Not a small amount. Due to this, Satyam becomes the undisputed leader of "Corporate Frauds" in India. Satyam has beaten down its rivals like deposit taking NBFC's of India, Harshad Mehta and Ketan Parekh's stock market scams in terms of the amount of fraud.

What Raju claims to have done?

Raju claims that the company has been showing inflated profits over the last so many quarters/years to please the analysts/investors to ensure that the company doesnt become a takeover target. He says that the company was actually making profits of 3% of its revenue but it has reported a net profit margin of 20% or so. That is, on a turnover of Rs2100 odd crores of turnover reported in Q2, 2008, it has actually made a profit of Rs63 crores but it has reported a profit of Rs580 crores. That is it has overstated profit to the extent of Rs517 crores in Q2, 2008 alone. Raju claims that the company has overstated revenues and income over the last so many years. As the actual profits are less than the reported profits, the excess of the profits between the reported profit and the actual profit has been accounted for in the cash in the books of Satyam.

Raju also claims that he has arranged more than Rs1200 crores over the last few years to keep the company afloat. That is, he has used his influence to borrow money for the business purpose of Satyam without accounting these loans in the books of Satyam.

Therefore, to sum it up, he says that he has overstated profits and understated the liabilities in the books of Satyam. All these being done to prop up the share price and to keep the company afloat and meet the salary and other obligations to Associates (employees of Satyam). All sounds noble, isnt?

What would have actually happened?

Raju is no saint and he is not running a company to help his associates make money at the cost of his personal wealth. It has been reported in the press that there has been sizeable siphoning of funds from Satyam towards purchase of land and properties in Hyderabad. Maytas Infrastructure, a group company of Satyam which was proposed to be acquired by Satyam three weeks ago, is into real estate and infrastructure development.

Raju may have probably siphoned the money to buy land in and around Hyderabad and other cities. He would have believed that real estate returns would be better so that he could be able to sell the land and repay the money back to Satyam. But the land prices moved against his expectations leading to a large erosion in value. He wanted to set right the erosion in value by merging the Maytas Infra and Maytas Properties with Satyam so that the "unreal" cash and bank balance can be exchanged for the real assets held by Maytas. Since Raju and his family owns 35% of Maytas Infra, it would be easy for him to carry the amount due to Maytas as just a book entry in Satyam. Atleast, he would have been able to buy sometime before he could arrange for funds and settle the due to Maytas Infra. But that is not the case now.

Raju's conscience has been telling him to accept guilt and face the law of the land!! So he wrote a letter to other Board Members and went into hiding for the last 2 days. The Indian law enforcement has been still grappling trying to figure out how to nail him down. No arrest warrant has been issued for him even after accepting the guilt for swindling Rs5000 crores from Satyam. Long live the Indian Laws!! Jai Hind!!

More on Satyam to come.

3 comments:

Athin said...

"Raju's Conscience has been telling him to accept guilt"

I believed the real reason behind confessing the truth is his inability to buy out MERRILL LYNCH, before tabling their report. If he was successful, then Ramalinga Raju should had continued for years...............

MERRILL LYNCH had been appointed to evaluate the various options after satyam - maytas fiasco before the board meeting 10/01/09.

Venkat Muthukrishnan said...

Yeah Athi. Thats true.. They are not able to play fool with DSP ML who was appointed as advisors. Atleast they were above board in this matter not like other respected names who are all implicated in the Satyam Fiasco.
Rgds
Venkat

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