NYSE halts trading in Satyam Computer

New York/New Delhi, Jan 7 (PTI) New York Stock Exchange today halted trading in Satyam Computer at its bourses in the US as well as Amsterdam in Europe, after founder and Chairman Ramalinga Raju disclosed financial bungling at the Indian IT major. "Yes, the stock is halted in New York and Amsterdam," a spokesperson for NYSE Euronext told PTI in an emailed reply on queries whether trading were being halted in Satyam shares.

In pre-market trade in the US, Satyam stock plunged by over 90 per cent to 0.85 dollars after Raju disclosed what has emerged as the biggest ever corporate fraud in India. Shares of Satyam on Indian bourses plunged by close to 98 per cent today, wiping off about Rs 10,000 crore (more than two billion dollars) from its market valuation.

Incidentally, two of Satyam's Indian rivals Infosys and Wipro that are also listed in the US, were trading with significant gains at the American bourses. NYSE-listed Wipro was trading with a gain of about 1.7 per cent, while Nasdaq-listed Infosys was up about 1.8 per cent.

However, most of the other US-listed Indian companies, such as ICICI Bank, HDFC Bank, Sterlite, Patni Computer, Rediff, Genpact, WNS, EXL Service, MTNL, Tata Motors and Dr Reddy's, were trading in the red at the US bourses. ICICI Bank was down over 13 per cent, while HDFC Bank plunged by over 10 per cent.

Besides, Sterlite was down over 9 per cent, Genpact and Dr Reddy's were down over 7 per cent, MTNL by over 6 per cent, Tata Motors by close to 5 per cent and WNS by over two per cent. PTI.

Rs 8,000 cr fraud hits Satyam; Raju may get 7-yr jail

In the country's biggest corporate fraud involving about Rs 8,000 crore, iconic IT company Satyam was hurtling towards disaster following the shocking disclosure of accounts fudging by its founder Ramalinga Raju, who then quit as chairman - leaving an uncertain future for the company and its 53,000 employees.

By the end of the day, the fourth largest IT company lost a staggering Rs 10,000 crore in market capitalisation as investors reacted sharply and dumped shares, pushing down the scrip by 78 per cent to Rs 39.95 at BSE. The NYSE-listed firm could also face regulator action in the US.

The government, regulator SEBI and the industry reacted with shock and anguish over the turn of events that could tarnish India's corporate and raise vital issue like ethics, corporate governance and accounting and business practices.

Acting in tandem, Corporate Affairs Ministry and SEBI announced that the episode would be probed and action taken against the perpetrators of the fraud that entails inflating profits and creating fictitious assets.

"I am now prepared to subject myself to the laws of the land and face consequences thereof," Raju said in a letter to SEBI and the Board of Directors, while giving details of how the profits were inflated over the years and his failed attempts to "fill the fictitious assets with real ones."

The Maytas firms, although promoted by his family, proved to be his nemesis, with Raju saying: "The aborted Maytas acquisition deal was the last attempt to fill the fictitious assets with real ones... But that was not to be. What followed in the last seven days is common knowledge."

While the government said the entire issue would be referred to the Serious Fraud Investigation Office, SEBI described it as an event of "horrifying magnitude." "It was like riding a tiger not knowing how to get off without being eaten," said Raju.

Removal from Sensex, Nifty

Satyam Computers may be removed from the Sensex and Nifty following the revelation of manipulation in the company's accounts, analysts said. Rajiv Mehta, senior analyst with India Infoline, a large brokerage house said his firm has immediately stopped covering Satyam and many other brokerage houses are also expected to do the same. There will not be any investor interest in the company anyway. The company may be removed from sensex and nifty, he said.

With the fall in its stock prices, Satyam has lost its weightage in the sensex considerably over the recent past and currently has weightage of only 1.56 as of Tuesday. While in nifty, the weightage is only 0.63 per cent.

B Ramalinga Raju can get a 7-year jail term

Satyam Computer Chairman B Ramalinga Raju can face seven years' imprisonment in addition to monetary penalties for forging accounts, breach of trust and misappropriating funds.

"He (Raju) can be charged under various sections of the Indian Penal Code for falsification of accounts, cheating and breach of trust. These offences attract a maximum penalty of seven years," said a senior partner of law firm Titus and Company, Diljeet Titus.

Expressing a similar opinion, senior Supreme Court advocate C A Sundaram said, "If the admissions (made by Raju in his resignation letter) are true, it is a very serious matter. It would be violation of (the) SEBI (code), Company Law and the IPC".

Another senior advocate and corporate law practitioner U K Chaudhary said the Satyam chief could be imprisoned for seven years under various provisions of company law. "Under section 628 of the Companies Act, which deals with misrepresentation of accounts, he could be punished for a maximum of 2 years along with penalty. However, the punishment term could be extended to seven years for producing false affidavits and other documents," he said.

In addition to Raju, Titus said "action should also be taken against Chief Financial Officers, Finance Managers, and Legal and Tax Advisors for their complicity in this episode".

Suggesting that the CBI should get into the case, he said if appropriate action is not taken, the Satyam fiasco would "make a mockery of the Indian enforcement mechanism".

NSE to remove Satyam shares from Nifty from January 12

MUMBAI: National Stock Exchange said on Wednesday it will remove Satyam Computer Services Ltd from its S&P CNX Nifty 50-share index from Jan 12.

The head of the outsourcing firm resigned on Wednesday, disclosing profits had been falsely inflated for years, sending its shares crashing nearly 80 percent.

The exchange did not give any reason for the change. Anil Ambani-group firm Reliance Capital Ltd will replace Satyam in the main index, the exchange said in a statement. Satyam will also be excluded from the CNX 100 index, CNX 500 index and the CNX IT index.

Satyam is a component of the Bombay Stock Exchange's main 30-share index <.BSESN>, the country's benchmark index. The BSE has not made any statement on Satyam as yet.

Satyam: Full text of Ramalinga Raju letter to the Board

Satyam Computers Services Ltd.

From B. Ramalinga Raju
Chairman, Satyam Computer Servcies Ltd

Dear Board Members,

It is with deep regret, and tremendous burden that I am carrying on my conscience, that I would like to bring the following facts to your notice:

1. The balance sheet carries as of September 30, 2008

a) Inflated (non-existent) cash and bank balance of Rs 5,040 crore (as against Rs 5361 crore refglected in the books)

b) An accured interest of Rs 376 crore which is non-existent

c) An understated liability of Rs 1,230 crore on account of funds arranged by me

d) An over stated debtor position of Rs 490 crore (as against Rs 2651 reflected in the books)

2. For the September quarter (Q2) we reported a revenue of Rs 2,700 crore and an operating margin of Rs 649 crore (24 per cent of revenues) as against the actual revenues of Rs 2,112 crore and an actual operating margin of Rs 61 crore (3 per cent of revenue). This has resulted in artificial cash and bank balances going up by Rs 588 crore in Q2 alone.


The gap in the balance sheet has arisen purely on account of inflated profits over a period of last several years (limited only to Satyam standalone, books of subsidiaries reflecting true performance). What started as a marginal gap between actual operating profit and the one reflected in the books of accounts continued to grow over the years. It has attained unmanageable proportions as the size of the company operations grew significantly (annualized revenue run rate of Rs 11,276 crore in the September quarter, 2008 and official reserves of Rs 8.392 crore). The differential in the real profits and the one reflected in the books was further accentuated by the fact that the company had to carry additional resources and assets to justify higher level of operations – thereby significantly increasing the costs.

Every attempt made to eliminate the gap failed. As the promoters held a small percentage of equity, the concern was the poor performance would result in a takeover, thereby exposing the gap. It was like riding a tiger, not knowing how to get off without being eaten.

The aborted Maytas acquisition deal was the last attempt to fill the fictitious assets with real ones. Maytas’ investors were convinced that this is a good divestment opportunity and a strategic fit. Once Satyam’s problem was solved, it was hoped that Maytas payments can be delayed. But that was not to be. What followed in the last several days is common knowledge.


I would like the board to know:

1. That neither myself, not the Managing Director(including our spouses) sold any shares in the last eight years-excepting for a small proportion declared and sold for philanthropic purposes.

2. That in the last two years a net amount of Rs 1,230 crore was arranged to Satyam (not reflected in the books of Satyam) to keep the operations going by resorting to pledging all the promoter shares and raising funds from know sources by giving all kinds of assurances (Statement enclosed, only to the members of the board). Significant dividend payments, acquisitions, capital expenditure to provide for growth did not help matters. Every attempt was made to keep the wheel moving and to ensure prompt payment of salaries to the associates. The last straw was the selling of most of the pledged share by the lenders on account of margin triggers.

3. That neither me, nor the Managing Director took even one rupee/dollar from the company and have not benefitted in financial terms on account of the inflated results.

4. None of the board members, past or present, had any knowledge of the situation in which the company is placed. Even business leaders and senior executives in the company, such as Ram Mynampati, Subu D T R Anand, Kesab Panda, Virender Agarwal, A S Murthy, Hari T, S V Krishnan, Vijay Prasad, Manish Mehta, Murali V, Sriram Papani, Kiran Kavale, Joe Lagioia. Ravindra Penu Metsa, Jayaraman and Prabhakar Gupta are unaware of the real situation as against the books of accounts. None of my or managing directors immediate or extended family members has any ideas about these issues.

Having put the facts before you, I leave it to the wisdom of the board to take the matters forward. However, I am also taking the liberty to recommend the following steps:

1) A task force has been formed in the last few days to address the situation arising out of the failed Maytas acquisition attempt. This consists of some of the most accomplished leaders of Satyam: Subu D, T R Anand, Keshab Panda and Virender Aggarwal, representing business functions, and A.S.Murthy, Hari T and Murali V representing support functions. I suggest that Ram Mynampati be made the Chairman of this task force to immediately address some of the operational matters on hand. Ram can also act as an interim CEO reporting to the board.

2) Merrill Lynch can be entrusted with the task of quickly exploring some merger opportunities.

3) You may have a ‘restatement of accounts’ prepared by auditors in light of the facts that I have placed before you.

I have promoted and have been associated with Satyam for well over twenty years now. I have seen it grow from few people to 53,000 people, with 185 Fortune 500 companies as customers and operations in 66 countries. Satyam has an excellent leadership and competency base at all levels. I sincerely apologize to all Satyamites and stakeholders who have made Satyam a special organization, for the current situation. I am confident they will stand by the company in this hour of crisis.
in light of the above, I fervently appeal to the board to hold together to take some important steps. Mt T R Prasad is well placed to mobalize support from the government at this crucial time. With the hope that members of the Task Force and the financila advisor, Merrill Lynch (now Bank of America) will stand by the company at this crucial hour, I am marking copies of this statement to them as well.

Under the circumustances, I am tendering my resignation as the chairman of Satyam and shall continue in this position only till such time the current board is expanded. My contribution is just to ensure enhancement of the board over the next several days or as early as possible.

I am now prepared to subject myself to the laws of the land and fact the consequences thereof.

(B. Ramalinga Raju)

Copied marked to:
1) SEBI Chairman
2) Stock Exchanges

Anil Ambani: The biggest loser of 2008

Touted on the cover of Forbes 2008 billionaires issue for having added $24 billion to his fortune in one year, Ambani has dropped $30 billion since then. But don't worry too much. His Reliance Entertainment is investing $500 million in a new studio venture with Steven Spielberg's DreamWorks. Plus, he remains quite wealthy, worth $12 billion. That's something many others can't claim.

The biggest billionaire gainer last March is now the year's biggest loser. Ambani lost $30 billion in the past nine months, more than anyone in the world. Stock of his telecom company dropped after his estranged brother helped scuttle a deal with African telecom MTN. It's quite an achievement in a year in which three of his fellow countrymen--estranged brother Mukesh, steel tycoon Lakshmi Mittal and Indian KP Singh, all of whom ranked earlier among the world's 10 richest--lost more than $20 billion apiece.

Anil Ambani
March net worth: $42 billion
Current net worth: $12 billion

Over 21 lakh jobs lost in US since Dec 2007

More than 21 lakh individuals have become jobless in the US ever since the world's largest economy entered into recession last December, with more number of employers resorting to mass layoff actions.

The number of such layoffs -- where 50 or more people are handed pink slips by a single employer -- touched 20,712 in the last eleven months.

On a seasonally adjusted basis, the Bureau of Labour Statistics in a statement said, "From the start of the recession in December 2007 through November 2008, the total number of mass layoff events was 20,712, and the number of initial (jobless) claims was 21,08,743." The number of job losses due to mass layoff actions stood at 1,41,750 in December last year.

Meanwhile, the National Bureau for Economic Research, which dates the nation's economic cycles, has said that America officially entered into recession in December 2007.

In the wake of the worsening financial turmoil, companies worldwide are cutting jobs to cut down costs. So far in December, companies across the world have announced more than 1.20 lakh job cuts.

More than one-third of the layoffs happened in America, where unemployment touched a record high of 6.7 per cent.

Reflecting the worsening labor market scenario, the data showed that the number of mass layoff actions rose to 2,328 last month whereas the same stood at 2,140 in October.

In terms of job losses, the November figures reached 2,24,079, slightly lower than 2,32,468 in the same period a month ago.

"The number of mass layoff events in November increased by 188 from the prior month, while the number of associated initial claims decreased by 8,389," data available with the Bureau of Labor Statistics showed.

Auto parts: 200,000 may lose job; 4,000 units face closure

India's auto component makers are facing one of the biggest crises ever. With the domestic market in the doldrums and the exports to the American market badly hit, many companies are on the verge of shutting down.

The entire supply chain of auto companies is bearing the brunt of the economic meltdown. From Tier-1 companies to small-scale units, all are facing a huge fall in demand, delayed payments and a stiff liquidity crunch.

"About 4,000 ancillary units are on the verge of closure and about 200,000 people will be affected by this crisis. Most companies have cut down the number of shifts, working days and are cutting down production. The US crisis has aggravated the problem," says Anil Bhardwaj, secretary general, Federation of Indian Micro, Small and Medium Enterprises (FISME).

The commercial vehicle segment is the worst hit by the crisis. Such crises are cyclical, and tend to recur every 5-6 years, but a calamity of this magnitude has put all companies in trouble. "Auto component makers are hit very badly. The original equipment manufacturers (OEMs) have not been able to sell stocks. Cash flow is getting hugely affected. Payments are getting delayed, affecting a lot of projects. The overall sentiment is negative," says Jayant Davar, vice president, Automotive Component Manufacturers Association (ACMA).

Domestic woes

It all started with the crisis in the auto industry. Car sales, which were booming, have now plunged. In the wake of the marked economic slowdown, there is a severe credit crunch. This has, in turn, slowed down demand for vehicles.

"Payments to vendors are getting delayed, loans for capacity expansion are not being sanctioned, and banks are refusing loans to auto companies that are supplying to companies like General Motors, Ford, etc. The removal of insurance cover for exporters too has severely hit the industry," Davar explains.

The Chennai-based Sundram Fasteners, which supplies radiators caps and fasteners to General Motors, says it is more worried about India than the United States. "Most of the auto companies have done very badly in 2008. The business in the second half of the year has been 50 per cent less than in the first half," says V G Jaganathan, president (finance), Sundram Fasteners.

The US impact

The auto crisis in the US has only worsened the situation. Auto component makers' exports to the Ford, GM and Chrysler were growing at 50-70 per cent. Out of this 35-40 per cent of the exports were to GM in North America. GM accounts for about $500 million of India's auto component exports.

Exports from Indian companies accounted for over $3 billion last year. "We were expecting a 20 per cent year-on-year growth. But this year, this has drastically fallen to about 6 per cent. November and December were the worst months for auto component makers," says Davar.

The auto sector is amongst the worst-hit industry sectors. Adding to their woes is the cancellation of credit insurance which protects manufacturers against payment defaults from buyers.

The Export Credit Guarantee Corporation has frozen issue of fresh credit risk insurance (CRI) cover to Indian component vendors of US auto giants. "Auto component makers are coping with the double whammy of the domestic market and the export market," says Bhardwaj.

Meanwhile, GM India is playing down the impact of the parent company going under. "GM North America is in crisis while GM Europe has flat growth. GM Latin America and Middle East, and GM Asia Pacific are doing well. GM has already sourced components woth $500 million from India and it will meet the target of $1 billion by 2010, as other markets still need components," says P Balendran, vice president (corporate affairs), GM India.

For companies like Sundram Fasteners, the crisis will have short-term impact. "GM accounts for about 2-3 per cent of the total business. We will continue to outsource products. In case, GM files for bankruptcy, payments will be delayed. Bankruptcy does not mean closure, it is restructuring," says V G Jaganathan.

Big trouble

Sandhar Technologies, a diversified auto parts maker that has plants in the Europe, has seen a fall in business by about 50 per cent.

"The topline growth for Sandhar Tech has grown to Rs 800 crore (Rs 8 billion) compared to Rs 640 crore (Rs 6.4 billion) last year. But the bottomline growth has been severely hit. Steps taken by the government -- like Cenvat cut -- are just nominal. There is no liquidity in the market. With high auto loan rates and a scary job market, the last thing on anyone's mind would be to buy a car," Davar, who is also the CEO and founder of Sandhar Technologies, laments.

Auto component companies employ about 400,000 people. The small and medium enterprises in India employ about 3.3 crore (33 million) people. Many of these SMEs are in the auto sector. A good majority of them have already lost their jobs and the sector is likely to see more job cuts.
"Though the jobs cuts are not apparent, a large number of people have already been asked to leave. "Many ancillary units which supply to these companies are also likely to be wiped out if the crisis continues," Davar says.

Commercial and passenger vehicle sales have fallen drastically. Unless sales go up, the market will continue to be sluggish, says carmakers. Most of the companies were half way through expanding their operations and building new capacities. It is now a huge burden on these companies as they have to bear the huge interest costs and the defaults in payments.

Help us!

Many banks have refused to offer credit to companies who are supplying to GM. They fear that in the event of a bankruptcy, their payments will also get stuck. Many companies established auto plants in India to enjoy the benefits of the excise cut exemption. They have already invested huge amounts into these plants.

ACMA has asked the government to intervene and help the industry. There should be more liquidity in the system. Many banks have pulled back credit to auto companies. The interest rates have to come down to push sales. Auto companies badly need the ECGC cover. The government should look into these issues.

Auto crisis & GM India

The crisis will not have any impact on GM's India operations. The company's plans are going on as per schedule. "We will go ahead with our plans with internal approval so the crisis in the US will not affect us in India. GM is the only auto company which has seen consistent growth despite a fall in sales in November," says Balendran.

Optimistic even during the crisis, he says that GM India performed better in 2008 than it did in 2007. "In 2006, we sold about 35,000 units; in 2007, we sold about 60,032 units, while in 2008, we have already sold 72,000 units. It has been a steady growth," he says.

GM has inaugurated the engine plant at Talegaon, with a capacity of 160,000 units. This plant is expected to be commissioned in the year 2010. GM India is likely to hire 500 employees at the plant. GM has also started the engine power train facility with a capacity of 140,000 units.

"We have already hired 1,000 people and we will be hiring 500 more. We have no plan to cut production or cut costs. The reason for GM's success in India is the product line up. Starting from Rs 2.99 lakh (Rs 299,000), we have cars for every segment. We will be launching the new Captiva in January, a sedan called Cruze mid next year, and a mini car in 2009. The upgrades programme will also continue as planned," Balendran adds.

Bleak future

How long will the crisis last? There are no definite answers to this.

"We are hoping the situation will improve slightly in the Jan-Mar quarter. But if the recession worsens, it will only be tougher for companies to get going," says Davar.

GM India believes the situation will take many months to improve. "The slowdown has gathered pace in the last 3 months. The market is very sluggish. Liquidity is certainly a problem and it will take months to recover," P Balendran says.

"About 25 per cent of all companies in the small and medium enterprises, have already become 'non-performing assests (NPAs).' As the crisis worsens, 50 per cent of SMEs in the auto sector will end up as NPAs," says Anil Bhardwaj.

The FISME has said that these trying times should be converted into an opportunity to create a lean and powerful economy with sustainable growth.

In its memorandum to the Prime Minister Manmohan Singh, the association has sought several relief measures, including a moratorium on repayment and the allowing of corporate debt restructuring for all unit.

The association has also demanded that wrking capital limits of enterprises must be enhanced liberally and specific steps be taken to ensure timely payment to Micro, Small and Medium Enterprises (MSMEs) against supplies made to corporates.

A big push is needed for exposing SMEs to exports. Currently, 0.5 per cent of SMEs are engaged in exports and yet contribute to about 50 per cent of the exports.

There is a critical need to look beyond Export Promotion Councils and leverage resources of private organisations and associations focusing SMEs, the FISME has said.