Satyam Fiasco

PRESENTED BY :Neela.K-30 Naveen-29 Keerthi-28 Manish-27 Manikanta-26 Mallikarjun-25

SATYAM
Set up in the year 1987 to provide services in IT sector India s 4th biggest software company in India It is listed in BSE, NSE, NYSE and Euronext (Amsterdam). BSE IPO oversubscribed 17 times when made public in 1991 The company employs 53,000 IT professionals across development centers in 6 continents
 First IT Company in the World Certified under ISO9001:2000  Ranked Among India s Top 10 Best Employers, 2004 and 2003  Top 13 Best-Managed Companies in India  Winner, Corporate Citizen I award for Corporate Social Responsibility  SAP Pinnacle Award 2008  Satyam Wins golden peacock award for excellence in Corporate Governance on Global level for 2nd time  United Kingdom Trade and Investment India Business Award for Corporate Social Responsibility

> Chairman and founder Satyam Computers Services Limited > MBA from Ohio University > IT man of the year award by Data Quest in 2002 > Winner of Ernst & Young entrepreneur of the year award in 2007
B. Ramalinga Raju Founder & Chairman, Satyam Computers Ltd.

B. Rama Raju Promoter & CEO, Satyam Computers Ltd.

> He became the Managing Director and Chief Executive Officer in 1991 > Mr. Rama Raju holds a Master of Economics degree from Loyola College, Chennai and a MBA degree from Loredo State University, Texas > Before 1997, he was with Maytas Infra Limited as one of its Directors

Satyam Clients
A total of 650+ Clients 185 of the top fortune 500 Companies

Satyam Board Structure

B.Rama Raju Promoter & CEO

Other Independent Directors

B.Ramalinga Raju Promoter & Chairman

Ram Mynampati Whole time Executive Director

Srinivas Vadlamani Chief Financial Officer

Dr/ M. Srinivasan

Prof. Krishna G Palepu

Mr. Vinod K Dham

Prof. M Rammohan Rao

Mr. T R Prasad

Prof. V S Raju

GTB/Dr. Reddy s Laboratories

Sasken Communication/ Hellsoft /Montalvo Systems and Newpath

ISB Dean/ Bharat electronics

Former CabinetSecretary /GMR Infra/ GVK Taj

Satyam Share holding Pattern

Institutional & NonInstitutional Shareholders LIC L&T Lazard Aberdeen Fidelity ICICI Prudential Citigroup JP Morgan 4.34% 4% 13.16%

Total Market capitalization of Rs. 15,262 Cr (As on Dec 16, 2008 )

Satyam Decade at a Glance

Maytas Infrastructure
The Raju s hold 36.64 per cent while institutional holding is 10.92 per cent The company had raised Rs 327.45 crore through IPO. It had a turnover of Rs 1,660 crore and net profit of Rs 100 crore in the last financial year Satyam planned to acquire 51 per cent stake for Rs 1, 440 crore or $0.3 billion
Mr. Teja Raju(VC)

Maytas Properties
B. Rama Raju Jr. (VC)

Raju s family owns 35% of Maytas properties Founded in 2005, it has a land bank of 6,800 acres It has clearances for three IT SEZs based on 148 acres

So, How did it all begun?

21 April 2008 22 Sep 2008

26 Jan 2009

2006

Satyam revenues cross $1 Billion

Satyam becomes first Indian company to publish IFRS audited financials

Satyam receives the Golden Peacock Award for excellence in Corporate Governance from World council

16 Dec 2008

17 Dec 2008

26 Jan 2009

Satyam gets board approval for controlling stake in Maytas Infrastructure and Maytas properties as fully owned subsidiary for $1.6B (Rs. 8000 Cr.)

Satyam backs out of Maytas deal citing investors protest Major Clients of Satyam express dissatisfaction. Contracts worth $200 million up for grabs Satyam shares plunge 55 percent in NYSE. BSE share plunges over 30%

Board meeting to be held on Dec 29 for proposed buyback of shares

19 Dec

20 23 Dec Dec

206Jan 2009

British mobile solution provider Upaid files a law suit against Satyam in a district Court in the US over Maytas deal. May face $1 Billion in penalties Centre refers Satyam deal to Registrar of Companies (RoC)

World Bank bans Satyam for 8 years due to inappropriate payments to staff and inability to provide information sought on invoices

26 28 29 Dec Dec Dec

26 Jan 2009

1st independent director Dr. Mangalam Srinivasan resigns from Satyam board
Satyam objects to world bank statements, asks to apologies or face legal action

Board meet initially scheduled for 29th postponed to 10th January Board announces exploring option for buyback of shares to restore investor confidence

3 more Independent Directors resign. Mendu Rammohan Rao, Krishna G Palepu and Vinod K Dham

Satyam asks DSP to review board structure

Rumors in market about strategic takeover by IBM, Accenture

Promoters disclose that their entire holding in Satyam pledged with institutional lenders since 2006

IL&FS sells 44.1 lakh shares pledged shares of Satyam promoters in 1 day. Promoters equity reduced from 8.6% to aprrox 7%

30 02 03 Dec Jan Jan

26 Jan 2009

Post cancellation of deal, Maytas looks for raising $500 million through sale of equities and properties

IL&FS sells further 44.27 Lakh pledged shares taking the tally to 1.5 crore pledged shares Satyam-Upaid case hearing over the Maytas deal in Texas court on January 8.

Satyam board confirms promoters stake to be around 5%. Further 3.2% still pledged.

05 06 Jan Jan

26 Jan 2009

Promoters stake in the company down to 4.5% SEBI considers proposal to make it mandatory for promoters and majority share holders to disclosed pledged shares to stock exchange

Total pledged shares sold by IL&FS reaches 2.5 Cr. in last 13 days. Promoters stake down to 3.6%. Still a further 1.7% are pledged The Night Before 7th Jan Merill Lynch discovers serious irregularities in books of accounts and approaches regulator SEBI for further course of action and its inability to investigate further. DSP submits report to SEBI and Satyam management late night.

Tech Mahindra (Revenues 3766 Cr.) offers to merge with Satyam (Revenues 8473 Cr.)

07 Jan

26 Jan 2009

09:45 A.M. Satyam Chairman Ramalinga Raju writes the following letter to the company board

ADR s crash 90% Satyam BSE scrip falls 78% DSP snaps ties with satyam.

Adobe Acrobat Document

Ram Mynampati takes over as interim CEO according to Raju s letter

Hunt for Raju brothers begin. Amid speculation over his whereabouts, Raju is believed to have left for the United States in connection with a court case. Satyam stripped of Golden Peacock award

Auditing firm PWC under scanner

Govt. instructs RoC to review report

NSE removes Satyam from its benchmark index Nifty. It will be replaced by Reliance Capital with effect from January 12. It will also be removed from various other indices like CNX 100, S&P CNX 500,CNX IT and the CNX Services sector index

08 09 Jan Jan

10 Jan

26 Jan 2009

PwC in major trouble. Stocks of PwC clients take a major beating at the BSE and NSE CFO Valdamani Srinivas, who is the financial custodian of the company resigns

BSE to replace Satyam Computer with Sun Pharmaceutical in its benchmark index Sensex with effect from January 12.

Former CFO Valdamani Srinivas remanded to judicial custody Raju brothers arrested by the police on charges of criminal conspiracy, cheating, forgery, misappropriation of funds and criminal breach of trust.

PwC shot back at Satyam, saying in a media statement that the auditing was based on the audit evidence provided by Satyam and in was accordance with applicable standards.

Market Capitalization of satyam falls to Rs. 1,607 Cr from Rs.15,262 Cr. on Dec 16 in 19 trading sessions.

13 14 15 16 Jan Jan Jan Jan

26 Jan 2009

Government hands satyam case to SFIO

23 year old employee of satyam commits suicide in Chennai

Maytas stocks hit the lower circuit for 7th consecutive trading session

The newly appointed 3 member board appoints auditing firm KPMG and Delloitte to assist it in cleaning the mess in the scam tainted company s accounts

The government expanded the threemember Satyam board to six to include S Balakrishnan of Life Insurance Corporation, Tarun Das, chief mentor of the Confederation of Indian Industry and T N Manoharan, former president of the Institute of Chartered Accountants of India

Why on 7th Jan 2009?

DSP Merrill Lynch informed SEBI about Material irregularities in Accounts on 6th Jan Minutes of Meeting of 16th December,2008 were not submitted to RoC-(This created some doubts) Hearing of Upaid- satyam case on 8th Jan at the US court

Raju ban gaya conman

Overvaluing the proposed acquisition

How?

Proposing High risk Maytas acquisition

Promoter pledging their holdings (decrease in

holding)

Refusing to resign Fudging Income statement

Maytas Acquisition
Valuation of Maytas duo was done at $1.6 bn as against actual $ 225 mn Violation of Section 372A of the Companies act
Rs.1,281.8 Cr Rs. 2,163.7 Cr Rs.7,920 Cr

Fabricated Income Statements

Creative Account Practice

Details of cash balances with Scheduled banks are not there in the Annual report Question raised by Equity analyst Kawaljeet Saluja -$500 mn cash parked in current account

5,040 + 376 + 470 (Rs. Cr)

Rs. 1,230 Cr

Rs. 7,136 Cr
Fraud Amount

Understated Liabilities Overstated cash balances, Income receivables

Why and How How ????

Investment in Real estate (Land Banks)

To keep EPS high

Sold his stake at inflated price (Made Rs.2,065 cr from shares)

Share Pledging
Stake decreased from 21.6% to 3.6% Money raised through 4 Front run Co. by offloading pledged shares (under investigation)
Amount (In Rs. Cr)
arangi gro arayandri reenfields

mravati reenlands angar gro

1 1 2

Amount (In Rs. Cr)

Fake FD receipts and Employee Nos.??

Take FD receipt The money has already vanished Tell to Banks FD receipt is Lost

At the end show the original FD receipts Park the Money in other Bank

Repeat the procedure

Ask for Duplicate Receipts

Use the Duplicate to Withdraw money

THE MANAGEMENT PERSPECTIVE

Corporate governance Comparison with similar cases

Role of Auditor
According to law there should be an external and an internal auditor(can be outsourced) Job is to check whether processes are being followed and are accurate and adequate One of the key audit test is to validate firm s cash and bank balances(what was PwC doing)

 Dec 05 - RBI bars PwC from bank audits after it found that the firm under-provided for non-performing assets of Global Trust Bank Mar 06 - Out of court settlement with shareholders of Internet Company E-district Mar 07 - Raid by Russian Ministry in criminal cases related to oil firm OAO Yukos July 07 - Paid $225 million to shareholders of Tyco international after proved guilty of accounting fraud July 08 - Facing a probe at Scottish Mineral water subsidiary for inability to spot $90 m fraud

And Now the Satyam

Fiasco

In the trap..PwC
One of the big four Auditors world wide ( Revenues of $28 Bn) Arthur Andersen(child of PwC) & Enron -Year 2001-02 Evading Income tax & Service tax in at least two cases of tax evasion. Imp thing to note that How could PwC have no clue of inflation of Balance sheet to 5,040 crores since yrs and DSP ML realizing it in less than 2 weeks

In the News..

Satyam-Maytas deal: A mockery of corporate governance

CG is about promoting corporate fairness, transparency and accountability.
Corporate governance makes the whole structure of the company more accountable towards each stakeholder, whether it is majority or minority. Practice of corporate governance is to make the proper disclosure to the stakeholders about each strategic decision so that stakeholders and market can reward the good decisions and punish the bad decisions.

Contd
First of all, the decision was not announced taking into confidence all the stakeholders of the company. Secondly, the twin Maytas companies are being the companies run by the family members of Ramalinga Raju only and it was told that his two sons are major interested party in the twin companies. Thirdly, the deal would have made the cash reach company Satyam into a debt ridden company as it s entire holding of $1.3 billion cash would have gone to Maytas Properties (where promoters were 100 per cent holding) and in Maytas Infrastructures.

Contd
Fourthly, Ramalinga Raju was holding only 8.5 per cent stake of Satyam computer so how can he take decisions of transferring its cash to a company owned by his son without asking the rest of the 91.5 per cent stake holders?
Fifthly, in the name of diversification from software to entirely new area of reality why has a relatively new company Maytas been chosen when several other big players are still there? Sixthly, is it really time to go for shopping in a sector where the economic slowdown is at its severest form?

Satyam
to

Mahindra Satyam
(the brand identity of Satyam Computer)

Board Of Directors :
Chairman

Vineet Nayyar
(Vice Chairman of Tech Mahindra.)

Independent Directors C. Achuthan T. N. Manoharan C. P. Gurnani Ulhas N. Yargop M Damodaran

C. P. Gurnani (CEO of Mahindra Satyam) Sanjay Kalra(Full Time Director) (CEO of Tech Mahindra Limited) Gautam S Kaji (Full Time Director)

Audit Committee
T N Manoharan, Chairman C Achuthan, Member M Damodaran, Member Gautam S Kaji, Member

Compensation Committee
C. Achuthan, Chairman T.N. Manoharan, Member Ulhas N Yargop, Member

Investors' Grievance Committee

C. Achuthan, Chairman C P Gurnani, Member Ulhas N Yargop, Member

Conclusion :
The Absence of Transparency in Decision making and Accountancy by PWC --Resulted questions to ICWA and INDIAs Integrity . Industries in India have to set Very high Standards of Ethics and Corporate Governance. Board Should choose Independent Directors recommended by Nominations Committee.

Buffalo

-All That Glitters are not Sold.

Greedy

No Ethics

Thankyou