In one of the darkest days in India’s corporate history, Satyam Computer Services Founder and Chairman B Ramalinga Raju today resigned after saying he falsified earnings and assets.
The startling revelation prompted a collapse in the stock of India’s fourth-largest software services company. Satyam, which means “truth” in Sanskrit, plunged a record 78% on the Bombay Stock Exchange, dragging down the Sensitive Index in a scandal described as “horrifying” by Securities and Exchange Board of India Chairman C B Bhave.
The National Stock Exchange has excluded Satyam from the Nifty 50 and S&P CNX 500 with effect from January 12. A BSE spokesman said the bourse will examine whether to remove Satyam from the Sensex, which tumbled 7.3 per cent today.
Raju’s letter to the company’s board said he tried to sell two promoter-related firms to Satyam last month, in a final attempt to plug Rs 5,500 crore of “fictitious” cash on the company’s balance sheet. Profits have been “inflated for several years,” Raju said.
Also Read: Satyam appoints Ram Mynampati as interim CEO ICAI moots strong punishment for Satyam CAs, auditors Raju a feared man; earlier in US, now in India: Experts Sensex slumps 749pts on Satyam fiasco Nasscom not to ban Satyam membership Of Satyam’s reported cash and bank balances of Rs 5,361 crore on September 30, Rs 5,004 crore was non-existent, Raju said in the letter. Operating margin in the quarter ended September 30 was 3% of revenue, instead of the reported 24%, Raju said. The company’s revenue was Rs 2,100 crore, 22% less than the inflated figure of Rs 2,700 crore that had been reported.
Raju arranged Rs 1,230 crore “to keep operations going” at Satyam over the last two years by pledging the founders’ shares and raising funds from other sources, he said.
“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,” Raju said. “It was like riding a tiger, not knowing how to get off without being eaten.”
His concern was that a poor performance, combined with the fact they held a small stake in the company, would make Satyam an easy target for a takeover, exposing the inflated figures, he said.
B Rama Raju, managing director of the company, also resigned today. Both will, however, continue in the position till the current board is expanded.
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