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GOVT SUPERCEDES SATYAM MGMT

By Abhishek on 4:26 PM

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Satyam Board disbanded || Raju Brothers arrested || Lazard seeks place on Satyam New Board
                       
Mr. Prem Chand Gupta, Minister of Corporate Affairs, said the government has decided to dissolve the current management of beleaguered tech giant Satyam Computer Services. As a result of the announcement, the crucial January 10 meeting will not take place now.

Sources in the Ministry of Corporate Affairs said the process of finalising the Board may take some more time. The move — which will see appointments effected under several sections including  Section 388 & 401 to 408 — was dictated by the unprecedented circumstances in the case, sources added.The government will appoint 10 new members to the Satyam board, replacing the previous members, which will meet within seven days. The process of finalising the Board may take some more time.

Staying away from giving any specific timeframe to when the new directors would be in place, ministry sources said before any announcement, the candidate’s consent would be sought and that the new directors would be in place till further order.

Reacting to the move, ICAI President Ved Jain said this was the first instance of such a large company being taken over by government nominees. “There have been smaller instances of such government action but this is unprecedented,” he said.

In another development, the Andhra Pradesh government formed a three-member panel to probe the criminal angle of the Satyam case, Ramalinga Raju was arrested on charges of forgery and criminal conspiracy by the Andhra Pradesh police last night after he confessed to Rs.7,000 crore fraud in Satyam Computers on Wednesday. His brother Rama Ramju too was arrested. Mr Raju has also been charged with criminal breach of trust, cheating, and falsification of record.

Ending speculactions about his location, the scam-hit Satyam chairman presented himself before the office of the Andhra Pradesh police S.S.P. Yadav around 10pm.

On Friday's trade Satyam's shares fell to 11.50 rupees, their lowest level since March 1998, however the share managed to pull up slightly from the record low to close at Rs. 23.75 at the NSE.

The Satyam saga drew a surprise curtain early on Wednesday with the resignation of the company chairman and founder Ramalinga Raju and the subsequent confession of balance sheet fraud. The confession has shaken the investor confidence and market sentiments that led the company share plunge by over 67% on trade. On the biggest ever IT fraud of India , Satyam Computers had shown their Q2 FY09 operating profit at Rs 649 crore as against the actual Rs 61 crore. This has resulted in artificial cash and bank balances going up by Rs 588 crore in the second quarter alone. Account manipulation started several years ago.

The stock hit a low of Rs 11.50, also its 52-week low. It hit a high of Rs 32 so far during the day. The stock had a 52-week high of Rs 544 on 30 May 2008.

Following a sharp plunge in Satyam's stock price on Wednesday (7 January 2009), both BSE and NSE have excluded Satyam Computer from their respective benchmarks effective 12 January 2009. Sun Pharmaceuticals Industries will replace Satyam on the Sensex, while Reliance Capital will replace Satyam on the Nifty.

In a letter to the board of directors, Raju states that Satyam’s balance sheet as on Sep 30, 2008, carries an inflated (non-existent) cash and bank balances of Rs 5,040 crore as against Rs 5,361 reflected in the books. Reacting to the news, shares of the IT company were down 62 per cent at Rs 64. Also, immediately following the news, DSP Merrill Lynch has terminated its engagement with the company.Raju has admitted that the Maytas acquisition deal was the promoters’ last attempt to fill the gaps on company’s balance sheets.

Trouble started for the fourth largest Indian IT company Satyam when Satyam Computers announced take over of Raju's family companies Maytas Infra and Maytas Properties. The deal however got called off on heavy investor protest but downturn continued haunting the company as the World Bank withdrew all transactions with the company for 8 years. That followed the news of Raju's stake sells and high level board meetings.

And finally the ice broke with the crashing confession and resignation of Mr. Raju about the fraud that left the entire Indian economy and especially the Indian IT on a shock.

India's fourth largest software exporter by sales has an equity capital of Rs 134.77 crore. Face value per share is Rs 2.

The current price of Rs 94 discounts its Q2 September 2008 annualised EPS of Rs 35.48, by a PE multiple of 2.64.

The chairman, besides declaring his resignation from the company, announced that the cash position of the company was inflated by Rs 321 crore. Accrued interest of Rs 376 crore which was non existent and the debtors position was overstated by Rs 490 crore.

Meanwhile, the stake owned by founders of Satyam Computer Services has fallen to 3.6% from 5.1% after institutional lenders sold the stock. Satyam had said earlier the founders' stake might have been diluted as institutional lenders to whom they had pledged their shares exercised options to cover margin calls.

IL&FS Trust Company had sold 24.52 million shares in Satyam Computer Services that were pledged with it as trustee on behalf of several debenture holders and lenders. The shares had been sold since 23 December 2008, IL&FS said in a statement. The shares constitute 3.6% of Satyam's shares on issue as at 20 October 2008.

Satyam Computers during trading hours on 18 December 2008 had said its board will meet on 29 December 2008 to consider buyback of shares. The announcement was aimed at soothing investor nerves after the Satyam stock slumped 30.22% on 17 December 2008. Investors had chucked the stock following the company's announcement after market hours on 16 December 2008 of a $1.6 billion deal to acquire Maytas Properties and Maytas Infrastructure, companies run by Raju's sons B Rama Raju and Teja Raju. Satyam scrapped a $1.6 billion acquisition of companies connected to its chairman after the plan angered investors. The company's total disregard for corporate governance and shareholders was shocking - Satyam had no plan to take the proposal to minority shareholders.

The World Bank said earlier Satyam had been declared ineligible for direct contracts with it for eight years 'for providing improper benefits to Bank staff and for failing to maintain documentation to support fees charged for its subcontractors'. Satyam has asked the authority to withdraw what it called 'inappropriate' statements and to issue an apology, but the World Bank in Washington has said it stood by its statement. Media reports had earlier said that data theft was one of the reasons why the World Bank had barred Satyam from doing business with it for eight years.

The World Bank, which had signed a $100-million billing per annum contract, had been an important client for Satyam. Since 2003, Satyam had been writing and maintaining all software for World Bank across all locations. This also included maintenance of software in back-end offices.

Satyam Computer Services' net profit rose 3.70% to Rs 597.43 crore on 6.87% increase in net sales to Rs 2700.52 crore in Q2 September 2008 over Q1 June 2008.

Satyam Computer Services is a global business and information technology services company. It delivers consulting, systems integration and outsourcing solutions to clients.



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