Fatal Wednesday proved to be too fatal for Satyam today.What started in a simple merger , has blown out of proportion and has exposed India's "Enron" along with our own "Aurthur Anderson".
The Revelations and confessions made today has rocked the world along with our "already" Brittle market indicator SENSEX, which went into a free fall mode and plunged over 7% based on these.
It is an irony that Satyam was the 2008 winner of the prestigious "Golden Peacock Award for Corporate Governance". The shares of the company dipped to an all time low of Rs.30.80 today and ended at Rs.40.25.
The Great Indian Accounting Scandal
Today the 7th of Jan 2009 Mr. Ramalinga Raju of Satyam Computers resigned after admitting to an Accounting Fraud. The ball was set in motion when the company stared at failure to Acquire Maytas Infra and after outcry from various public outfits (especially the Media) the deal was called off. This forced the management to give explanations for the gaps in the Balance Sheet and eventually things unfolded to reveal that Satyam’s balance sheet as on Sep 30, 2008,
- Carried an non-existent(inflated) cash and bank balances of Rs.5,040Cr.
- It carried an accrued interest of Rs 376 crore which was non-existent.
- An understated liability of Rs 1,230 crore on account of funds was arranged by Mr. Raju.
- An over stated debtors position of Rs 490 crore.
- All together taking the tally to Rs.7,136 Crores.
On the same BS date, the company reported a revenue of Rs.2,700Cr. when actualls were Rs.2,112Cr. and a operating Margin of around Rs.650Cr. when the actuals were Rs.61Cr.
Causality
This term denotes a necessary relationship between one event (called cause) and another event (called effect) which is the direct consequence (result) of the first. And with due reference to the above this relationship holds good with the Multi Year fraud that has been revealed. According to Mr. Raju, "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 company operations grew significantly"
Effects
Due to the above problem, the management was forced to take necessary action and thats when Maytas came into the picture. Maytas Infra is held by Mr. Raju's sons and Satyam worked out a deal where Satyam Computers would have paid at least Rs 5000 crore to acquire the Maytas companies from the promoters (Mr. Raju's Sons). The money was non-existent. So, it would have pretended to pay the money and ended up with the assets (the two Maytas companies). The promoters may have never got paid but that would have served them right.
Put in layman terms - Mr. Raju instead of making a gift deed and making things in the public,he went to do the same thing abiding all company laws. But his plans saw a dead end when the deal was forced to be called off amidst an outcry from media and analysts. This resulted in the Beginning of the End of Mr. Raju and today he has resigned and accepted his Fraud in public.
What Could have been - Mr.Raju's Point of View
If the Deal with MAYTAS had gone through then everything would have been alright - Satyam would have filled the BS with assets that it would gain from the supposed "takeover". Then real assets would appear in its books instead of non-existent cash; the Raju family would have continued to manage Satyam, even if it meant that they have to lose a few crores..and investors would have still have a chance to get their money back, Fortunately or Unfortunately That didnt happen.
To top this all off PWC - the auditors of Satyam have been aiding this from the beginning..Hats off to all you guys at PWC..You have just destroyed the life of a few million people.
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