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

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