SATYAM : Seems Sunk and looks difficult to Save and Salvage as too many Contingencies scaring off potential Buyers

On Paper, as of September 30,2008 the Assets of Satyam were Rs 8300 crs…after adjusting for the overstated assets and understated liabilities as confessed by the now disgraced Promoter Chairman,Ramalinga Raju the networth of Satyam drops to @ Rs 1200 crs….With 67 crore shares of Face Value Rs 2 in existence,the book valueper share would get restated to around Rs 20…Satyam’s Share Price has dropped from yesterday’s closing of Rs 40 to Rs 20 this morning reflecting this

But will Satyam’s Share Price drop to Zero or move up from here !? Will Trading be stopped in it ?

The Andhra Pradesh Chief Minister has written to the Prime Minister to form a Committee of I T Stalwarts,Narayan Murthy from Infosys,Azim Premji from Wipro and Ramodarai of TCS to salvage Satyam and save the jobs of over the claimed 50000 Satyam Employees 

However,as I look at it right Now even this restated networth of Rs 1200 crs of Satyam looks suspect and will be under threat on two accounts

  • Ramalinga Raju has confessed that for years he inflated Revenues and Profits in Satyam ..It has to be investigated as to when did he start doing so and what is the quantum of inflated revenues and profits…If he inflated Revenues,then it would mean perhaps that the Debtors have been overstated and further adjustment may not be required here…but Profits may convert to losses and therefore Reserves may need further adjustment to reflect the quantum of overstated profits…This would reduce the Networth further and posssibly make it Negative…This would mean the Book Value of Rs20 too would appear overstated
  • Law Suits have already been filed in USA on behalf of ADR Shareholders and law suits will surely follow in India too….Claims in such suits runs into Hundreds of Millions of Dollars…Satyam may not be solvent enough to tackle such Claims…Right Now such Claims are Contingent

There are some other tainted issues too…like the Real Number of Satyam Employees…Management claims 53000 employees….It is suspected that this figure is grossly overstated…Also there is strong views on the Credibility of Satyam Managers…Most IT Companies are smply in no hurry to absorb them…In fact Infosys has categorically said it will not touch tainted Satyam and has also instructed it’s HR Dept not to entertain Satyam Employee Resumes

It is difficult for any Potential Buyer to only absorb the Operating Business of Satyam without exposing themselves to the sword of growing Contingent Liabilities

As a seperate Legal Entity,Satyam is toxic to touch right now…However what will happen is that It’s Lifeline,it’s Clients will review their relationship with Satyam and in all probability migrate to other IT Companies as the risk of staying with Satyam may be too high…Satyam resources may be directed towards fighting for survival rather than Client Servicing…To maintain some level of Continuity,what is possible is that Satyam Teams working on Genuine Client Business may also migrate to the Clients directly or to the IT Company that has taken over from Satyam to serve the Client

The Nightmare for Satyam has only just begun…..difficult to see any potential Buyer taking the risk to buyout Satyam,given the growing contingent liabilities…therefore cannot advice to buy into Satyam at Rs 20

Remember the risk that some crazy NSE Member took when he bought Millions of Shares of the tainted Global Trust Bank at Rs 9 to Rs 11 a few years ago in the wrong belief that a white knight or the Government will bail it out

It is important that a Market Player must also keep himself abreast of and be well versed in Accounting,Auditing and Legal Issues and their Implications for all stakeholders that arise in such situations.

This Bank ceased to exist  and with this  all the Equity Holdings died out too….Interestingly the auditors here too were Price Waterhouse…The crisis happened because here too the Auditors were unable to spot the Huge  Hole of the Non Performing Assets, which was not provided….In 2004 RBI referred the matter to ICAI for taking action against the Auditors…It’s 2009 and ICAI yet has to come out with it’s report…reason is perhaps because Price Waterhouse Partner ,Gopalakrishnan has been serving on the ICAI Council for the past 11 Years in his Fourth Term !  

So Please understand all the Risks involved in Buying into Satyam Now at Rs 20…If Contingents play out,you will see even this Rs 20 be wiped off…If you’re betting that there will be a salvaging buyout and therefore it’s very tempting to buy in to Satyam at Rs 20,remember it looks difficult to visualise that any potential buyer will be willing to be exposed to contingencies that could run into Hundreds of Millions of Dollars

Buyer Beware….Satyam seems to be on the Course to Implode

4 thoughts on “SATYAM : Seems Sunk and looks difficult to Save and Salvage as too many Contingencies scaring off potential Buyers

  1. Hi Gaurav, you are having a nice blog-very informative. I feel it would be naive to take Raju’s statements as absolutely true at this point of time. The impression here in Hyderabad is that there is more to it-a complicated diversion of funds-which may be outside the purview of external audit procedure, and thus may not qualify as inflated balance sheet. The external auditors as we all know are not whistle-blowers-they go by bonafide documents etc.

  2. Hi Shyam,

    It’s fast becoming a financial potboiler…expect books and Movies based on the Satyam Saga soon!

    Actually Satyam had a Whistle Blower policy.Yet none blew the whistle and now we see many ex-employees claiming they knew something was wrong !…Why did they not blow the whistle ?

  3. Hi Gaurav again,
    very nice that atleast the two of us are catching up and reacting to the absolutely latest-latest! I teach business at Hyd. and have referred your site to my class. Yes, you said it, we are needing everybody from Satyam employees to her auditors(external and internal) to news channels to clients and to the irate and semi-informed public to blow the whistle for one simple reason. Leadership is just missing in governance. The reasonable approach when so much is at stake was to come up with a prima-facie fact finding report within hours of the chairman’s letter(why not even before it because we knew something was amiss for atleast a week?). Issuance of such a statement by the government would help in the right kind of questions being asked and also for the interested parties to prepare for what might happen. What we have instead are bits and pieces statements from the ministry of commerce and the other regulators. The state govt. which has so much at stake has passed the buck on to the centre.This is keeping everybody guessing and adding to the confusion. Worse, it is giving more time to Raju cover his tracks(maybe by inflating and deflating some more). Anyway, the news channels must thank all these dramatis personae-it means scope for sensationalizing- and this means more TRP points- and this means keeping the wolf away from the door some more days. Come to think of it, these channels are so much leveraged themselves that they are facing the heat of the global slow-down as much as our friend Raju did.

  4. Hi Shyam,

    Great to learn you’re in the Business Training Profession….A year or two ago I was invited to Hyderabad by the Andhra Chamber of Commerce and the Hyderabad Chapter of the Institute of Chartered Accountants to address over 300 people on Equities…They enjoyed it as much as I did as I revealed where our markets would be headed and with humorous anecdotes explained why it would not only survive but thrive ….I spoke also How and Why the Demat IPO Scam happened and it was nothing new…it was happening in an earlier garb even before Demat came into existence…They followed up with me in Mumbai as they wished to carry the address in their Annual Magazine…I may be coming down there shortly to conduct a Training Workshop for a leading Bank….Lovely City despite being scandalised by the likes of Satyam

    Cheers !

Leave a Reply

Your email address will not be published. Required fields are marked *