FLAWED OWNERSHIP MODEL
Satyam ownership model was flawed from the perspective of
good corporate governance. There may be three factors responsible for this. The
factors are not the causes of global and colossal fraud, but they provide an
enabling environment for abuse and delusion.
1. First, being a publicly owned company, Satyam could raise
capital inexpensively if its existing shareholders assigned it a high value.
Hence, in order to attract capital from public, it was under pressure to
overstate profits to keep the company’s bonds and equities in high esteem.
2. Second, the
promoter of the company, Mr. B. Ramalinga Raju, owned a very small fraction of
the ownership stock. He diluted his holding from 25.6 % in 2001 to 3.6 % in
2009. He could overstate profits with the objective of influencing other
shareholders.
3. Third important factor for flawed ownership model may be,
Satyam could preserve its fictitious profits without having to pay big taxes
because its profits were protected significantly from the normal tax laws.
They
do not pay taxes on fictitious revenues and 22 profits. There are no penalties.
The belief that exempting firms such as Satyam from service tax and corporate
income tax will make them competitive is a little ridiculous. Satyam would not
have overstated its revenues and profits if it had to back both with real cash.
A big part of the blame for the colossal fraud thus belongs to India’s trade
and fiscal policy makers
Some major acquisitions so done were; Securities
Subscription Agreement (SSA) having Satyam and its subsidiary Nipuna Service
Ltd. on one end and Olympus BPO Holding Ltd. and Intel Capital on the other;
incorporation of the Satyam Infoways Ltd.; Acquisition of S&V; purchase of
SAP license, to name a few. In the tie up of Satyam BPO with Olympus BPO
Holding Ltd and Intel Capital, Satyam received a sum of Rs. 91.10 crores in
lieu of which it had to make a payment of Rs.233.26 crore to the same either
through redemption of shares or purchase of shares either through Satyam or
through its subsidiary, thus the management incurred losses to the tune of over
Rs.142 crores. Satyam Infoways Ltd. proved to be yet another fruitless attempt
in the chronology of acquisitions done by Satyam. Initially, the company had
gross investments of over Rs. 749.65 crores and Rs. 763.47 crores as in March
2001 and March 2002, respectively. Investments were majorly plunked in three
firms viz M\s Indiaworld Communications Pvt. Ltd. (Rs.501 crores), M\s India
Plaza.com Inc (Rs.35.76 crores) and M\s Cricinfo Ltd (Rs.168.25 crores), which
turned to zero in March 2004, March 2002 and March 2003, respectively. Even
after earning heavy losses in above ventures, Satyam went for acquiring S&V
consultancy through Nitor Global Solutions Ltd. at a consideration of Rs.141.50
crores on April 21, 2008, Bridge Strategy Group LLC, a strategy and general
management consulting firm, Citisoft, a highly specialized European business
and systems consulting firm; and Knowledge Dynamics, a high-end consulting
solutions provider in Business Intelligence. For SAP license, Satyam invested
Rs.44 crores knowing the fact that company was in financial crunch and the
expenditure required for implementation of the SAP-ERP package (meant for
learning solutions, e-recruiting etc.) would be huge.
2008-9
Dec
23 | World Bank bars Satyam for eight years for data theft and ‘bribes’
Dec 26 | Oldest board member M Srinivasan resigns
Dec 29 | Directors K Palepu and R Rao quit. Promoters have pledged their holdings to institutional investors, BSE told
Jan 1 | Andhra Pradesh CM gives company a clean chit
Jan 6 | Satyam promoters’ stockholding falls from 5.1% to 3.6%. Scrip rises 7% on reports of all-share merger with rival Tech Mahindra
Jan 7 | The truth is out IMPLICATIONS
FOR SATYAM
Employees | Flooding job portals with CVs
Clients | Likely to rush to Infy, Wipro & TCS
Shareholders | Lose Rs 9,374 crore in a day, worse to come
R Raju | Faces civil and criminal prosecution, possible jail term
FOR INDIA INC
Auditors | PwC faces ICAI probe, lawsuits; wider measures likely
Markets | Lose wealth amounting to Rs 1.3 lakh cr
Independent Directors | Govt promises “severe” action against them
IT Sector | Credibility issues in the short term SATYAM SHAREHOLDERS HAMMERED
Dec 26 | Oldest board member M Srinivasan resigns
Dec 29 | Directors K Palepu and R Rao quit. Promoters have pledged their holdings to institutional investors, BSE told
Jan 1 | Andhra Pradesh CM gives company a clean chit
Jan 6 | Satyam promoters’ stockholding falls from 5.1% to 3.6%. Scrip rises 7% on reports of all-share merger with rival Tech Mahindra
Jan 7 | The truth is out IMPLICATIONS
FOR SATYAM
Employees | Flooding job portals with CVs
Clients | Likely to rush to Infy, Wipro & TCS
Shareholders | Lose Rs 9,374 crore in a day, worse to come
R Raju | Faces civil and criminal prosecution, possible jail term
FOR INDIA INC
Auditors | PwC faces ICAI probe, lawsuits; wider measures likely
Markets | Lose wealth amounting to Rs 1.3 lakh cr
Independent Directors | Govt promises “severe” action against them
IT Sector | Credibility issues in the short term SATYAM SHAREHOLDERS HAMMERED
A city court on Thursday sentenced 80 directors belonging to 19 firms affiliated to the erstwhile Satyam Computers Ltd to one-year imprisonment in an income tax evasion case.
In addition, four women directors were sentenced to six months imprisonment. The sentenced directors included Ramalinga Raju, founder and ex-chairman of Satyam Computers, his wife Nandini, son Rama Raju and Radha, wife of Raju’s brother.
