A Lion’s eye on the Bulls and Bears
“In India, companies may fall sick, but promoters rarely do!”
Raju Raju sat on the wall
Raju Raju had a great fall
Balance sheet died
Shareholders cried
Raju Raju made a fraud
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(Thanks VGP)
Larsen was probably ill advised to buy a 4% Stake in Satyam at undisclosed price…Definitely over Rs 100 asY.M. Deosthalee told Dow Jones Newswires by telephone that the company acquired the stake over ten days ending Tuesday through its L&T Capital arm.
This would mean L & T Capital,through whom Larsen bought the Stake,paid Prices of between Rs 114 to Rs 180 which were the Low and High in Satyam over the days of the Purchase
Larsen now holds close to 2.70 crore shares in Satyam at Investment cost of over probably between Rs 350 crs to Rs 450 crs….On Wednesday,January 7,Satyam opened at Rs 175 but closed at Rs 40 after Ramalinga Raju’s Confession of a massive Fraud…Today Satyam has sunk even lower to Rs 20…Larsen’s holding in Satyam is worth just Rs 54 Crores inside days…It has lost over 85 % and @ over Rs 300 crs notionally inside two days !…it will have to mark the investment to market
If Satyam ceases to exist,so will it’s Equity and Larsen would have lost over Rs 350 crs
Larsen just jumped the Gun Here !…Sure some in Larsen will lose their Jobs !
They were clearly ill advised to take this Risk and Methinks should take the Lead in Filing a FIR against Satyam and Ramalinga Raju for the Fraud and even the auditors for not spotting the Asset Hole
There is also the grave posssibility that L & T Capital may have picked up the same 4 % of Equity sold by the Lenders to Ramalinga Raju on his pledged shares…If this is so,then Ramalinga Raju may have awaited this sale at High Prices before releasing his Confession Letter on January 7,2009
Larsen must not let Satyam and Ramalinga Raju get away with this !
The Share Price of Larsen has also eroded by 15% to below Rs 700 in quick time
Punj Loyd is facing a serious Problem in it’s wholly owned subsidiary in United Kingdom It has seen a Cash Outflow of Sterling Pounds 28.5 Million which translates to @ Rs 250 crs on encashment of Bonds by SABIC…The Subsidiary,Simon Carves Ltd has filed a Case against SABIC
In a Growing Global Recession…UK has already admitted to going through one….such Bonds are Like Time Bombs as Clients, to get out of Contracts,may accuse of some breach ,and encash Bonds to prop up their Liquidity and take the risk of inviting lawsuits
The Share Price of Punj Loyd has reacted sharply by over 12% to Rs 116 levels (2.30 PM)
Wonder if Punj Loyd or it’s subsidiaries has issued any more such Bonds on Contracts being executed which they fear may too be called by Clients…..Specific Disclosures giving Details on Bonds should be made mandatory in the Annual Report in the Notes to Accounts for Contingents ,instead of just giving an Aggregate…This would be Crucial Data for an Investor,who can take a call to exit early if he reads in the Media or comes to know of Problems in Specific Contracts and fears that The Bond may be encashed by the Client.
Have a look at the notice it send to BSE and NSE this morning
___________________________________________________________________________
January 09, 2009
Disclosure pursuant to the Listing Agreement
Pursuant to its obligations under the Listing Agreement, the Company wishes to inform
you that its wholly-owned UK subsidiary, Simon Carves Limited (“SCL”), has commenced
adjudication proceedings against SABIC Petrochemicals UK Limited (“SABIC”). These
proceedings are ultimately aimed at seeking restitution, through the U.K. Courts, of £28.5
million (pounds sterling) in respect of an advance payment bond and a performance bond
called by SABIC following in SCL’s view, the wrongful termination by SABIC of the contract
between SABIC and SCL. Additional costs and damages will also be sought by SCL
against SABIC associated with cost overruns in the project caused by changes in scope
and design requested by SABIC and also to recover damages for losses arising as a
consequence of the termination of the contract.
SCL had contracted with Huntsman Petrochemicals (UK) Limited (subsequently acquired
by SABIC) in early 2006 to design, build and pre-commission a 400 kte per annum low
density polyethylene plant (“LDPE”) at Wilton, Teeside in the UK. This contract was
entered into between SCL and SABIC prior to the acquisition of SCL by Punj Lloyd in May
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
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
In this unfolding Satyam Saga unleashed by Chairman,Ramalinga Raju’s confession on fudging accounts for years,this evening we had their auditors,Price Waterhouse releasing a statement defending their audit of Satyam ,stating it complied with generally accepted auditing standards in India and that there was appropriate evidence to support their audit
They have also ,under the excuse of client confidentiality,refused to give more details
Come on Price Waterhouse !…what Client !? Satyam !?…legally it is the Shareholders (Satyam has over 2 lakh of them) who have reappointed you at the last AGM as the auditors…you have a fiduciary responsibility to them more than to Satyam…so hiding behind the Coat of Client Confidentiality is clearly ill- advised
It would ofcourse be interesting to see what their ‘appropriate evidence’ is.
But let’s put their role in perspective and in context of the last published Annual Report of FY 2007-8
Relevant Extracts from Satyam’s Annual Report of FY 2007-8
Pages 39 and 40
AUDIT COMMITTEE
The Audit Committee consists of 100 percent independent and non-executive directors.There were four Members….Prof M Rammohan Rao,Chairman,Dr (Mrs) Mangalam Srinivasan,Mr T R Prasad,Prof V S Raju….There were seven committee meetings in 2007-8 an were attended by the CFO,Head of Internal Audit and Statutory Auditors as Invitees.The Committee reviewed the adequacy of the Internal Control Systems and Internal Audit Reports and their compliance thereof.
Page 56
Internal Control Systems and their Adequacy…Part of Managment’s discussion and analysis…Important Points
Page 60
Personnel Costs…Part of Managment’s discussion and analysis…Important Points
Personnel Costs were Rs 5045.54 crs ( 62.01% of Revenues ) for an aggregate employee base of 55360 of which 43279 were technical associates,2690 were non-technical associates and 9391 were onsite technical associates
Page 62
Auditors Report to the Members of Satyam Computer Services Ltd
Point 2 : We conducted our audit in accordance with auditing standards generally accepted in India.Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement….We believe that our audit provides a reasonable basis for our opinion
Point 4 g goes on to give the auditors unqualified opinion that the financial statements that comprise the Balance Sheet,the Profit and Loss Account and the Cash Flow as on March 31,2008 ,read with the notes give a True and Fair view inconformity with generally accepted accounting principles in India