Bangalore: Satyam Computer Services founder-chairman B Ramalinga Raju has resigned from the IT major's board after admitting a multi-crore fraud in the company’s accounts.
In a notification to the stock exchanges, the Hyderabad-based IT firm said Raju and Managing Director Rama Raju had resigned early Wednesday and that the Securities and Exchanges Board of India (SEBI) had been informed.
In the regulatory statement, Raju said that the company had fraudulently incorporated a non-existent cash component and inflated the bank balance to reflect Rs 5,040 crore (Rs 50.4 billion) as against Rs 5,361 crores (Rs 53.61 billion).
''No board member had any knowledge of the real situation. Accrued interest of Rs 376 crore in books is non-existent. About Rs 1,230 crore was arranged to Satyam, but was not reflected in the books,” he said.
CNBC-TV18 reports that the account manipulation started years ago. "It was like riding a tiger, not knowing how to get off without being eaten," Raju said in his resignation letter to the company’s board of directors, in which he listed major financial wrong-doings over the years to inflate profits.
"I sincerely apologise to all Satyamites and stakeholders, who have made Satyam a special organisation, for the current situation," said Raju. "I am now prepared to subject myself to the laws of the land and face consequences thereof."
Raju recommended DSP Merrill Lynch be entrusted the task of "quickly exploring some merger opportunities," but the investment banker informed the stock exchanges that it has terminated its engagement with Satyam.
According to Raju, Ram Mynampati will act as an interim CEO. The resignations, ahead of January 10 board meeting, pushed the company into crisis and paved the way for immediate restructuring of the board and the management.
Shares of the company plunged by over 40 per cent soon after the resignations. Satyam, considered a ripe proposition for acquisition, was pushed into crisis after Raju was forced to abandon the acquisition of Maytas Infrastructure and Maytas Properties promoted by his son.
In a regulatory filing the company said Raju would continue to be the chairman till the board is expanded. "Under the circumstances I am tendering my resignation as the chairman of Satyam and shall continue in this position only till such time the current board is expanded. My continuance is just to ensure enhancement of the board over the next several days or as early as possible," said Raju.
An account of the confession
Raju said the fraud was “marginal” when it started but then grew over the years. "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," said.
"It has attained unmanageable proportions as the size of the company operations grew significantly. The differential in the real profits and the one reflected in the books was further accentuated by the fact that the company had to carry additional resources and assets to justify higher level of operations thereby significantly increasing the costs," he said.
"The aborted Maytas acquisition deal was the last attempt to fill the fictitious assets with real ones. Maytas' investors were convinced that this is a good divestment opportunity and a strategic fit. Once Satyam's problem was solved, it was hoped that Maytas' payments can be delayed. But that was not to be," he said.
Raju claimed that he and Managing Director Rama Raju (his brother) didn’t make any personal profit from the inflated accounts.
The balance sheet also carries "an accrued interest of Rs 376 crore which is non-existent, an understated liability of Rs 1,230 crore on account of funds arranged by me (Raju), an overstated debtors position of Rs 490 crore (as against Rs 2651 crore reflected in the books," Raju said.
He further said that Satyam reported a revenue of Rs 2700 crore for the September quarter and an operating margin of Rs 649 crore (24 per cent of revenue) as against the actual revenue of Rs 2112 crore and an actual operating margin of Rs 61 crore (3 per cent of revenue).
"This has resulted in artificial cash and bank balances going up Rs 588 crore in Q2 alone," Raju said.
"The gap in the Balance Sheet has arisen purely on account of inflated profits over a period of last several years (limited only to Satyam standalone, books of subsidiaries reflecting true performance.
The alleged irregularities in the company's accounts will be referred to the Serious Fraud Investigation Office, said Corporate Affairs Minister P C Gupta. "I can assure you if anyone is found guilty, appropriate action under the law will be taken," he said.
This is what Raju wrote in a letter to the Satyam Board members:
"It is with deep regret & tremendous burden that I'm carrying on my conscience, that I'd like to bring the following facts to your notice. The balance sheet carries as of September 30, 2008 inflated cash and bank balances of Rs 5,040 crore. For the September quarter we reported a revenue of Rs 2,700 crore and an operating margin of Rs 649 crore as against actual revenue of Rs 2,112 crore and an actual operating margin of Rs 61 crore. This has resulted in artificial cash and bank balances going up Rs 588 crore in the second quarter alone. The gap in the balance sheet has arisen purely on account of inflated profits over a period of the last several years. As the promoters held a small percent of equity, the concern was that poor performance would result in a take over thereby exposing the gap. It was like riding a tiger, not knowing how to get off without being eaten."
Satyam is the country's fourth largest IT firm and has over 51,000 employees.