Technology, Science and Religion - facts and wisdom

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 

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.

http://economictimes.indiatimes.com/et-now/daily/sat-passes-order-in-satyam-scam/videoshow/58649300.cms