Presentation on Satyam Scam

The Hidden Truth

Presented By :- Shalu Tomar

Ankur
Arvinder Singh
Neha Saurabh
Mukesh
 INDIA’S LARGEST
CORPORATE FRAUD
 Satyam – The company
• Fourth largest Indian IT Company listed in India & US
• Over US $ 2 billion annual revenue size Co
• Established in mid 1980s, grown to 53,000 employees;
• 600 plus customers including 185 fortune 500 Cos
• Operations in 66 countries across the globe
• Financial advisor: Merrill Lynch (now Bank of America)
• Auditors: Price Water House Coopers
• Bankers: ICICI, Citi bank & HDFC.
• Satyam has strategic technology and marketing alliances with over
50 companies.
• Apart from Hyderabad, it has development centers in India at
Bangalore, Chennai, Pune, Mumbai, Nagpur, Delhi, Kolkata,
Bhubaneswar, and Visakhapatnam.
 SATYAM :- Fraud Facts…

• Satyam is the biggest fraud in India's corporate history.

• Just few months ago, India's fourth-largest software services
exporter, Satyam Computer Services received a Golden Peacock
Global Award from a group of Indian directors for excellence in
corporate governance.
• Ramalinga Raju himself was the recipient of many an award for
corporate governance and transparency
• The fraud has brought to light the fact that in India the
distinction between owners and management is still not very
clear.
• Where the owners are also the managers, such frauds are
always a possibility.
Why satyam goes down ? why satyam is in
scandal…?

Satyam Computers had on December 16, 2008, announced that it will

acquire two group firms - Maytas properties and Maytas Infrastructure

The BOD of Satyam had approved the founder’s proposal to buy 51 per
cent stake in Maytas Infrastructure and 100 % in Maytas Properties.

The total outflow for both the acquisitions was expected to be US$ 1.6 bn
comprising of US$ 1.3 bn for the 100% stake in Maytas Properties and
US$ 0.3 bn for the 51% stake in Maytas Infra

This deal is not profitable for investors .So after this announcement they
started to raise their voices against the deal
The company is run by the sons of Ramalinga Raju

It was started in the late 1980’s by Ramalinga Raju

The main reason for the debacle of Maytas Infra is due to the debacle of
Satyam
 What Satyam Scam Is..?
Balance sheet of the Co. As ON 30 SEPTEMBER 2008
CURRRENT ASSETS ACTUAL DEBT
WAS 2161
OVERSTATED
490 CR.
ACTUAL CASH IN
BANK WAS 321
INFLATED 5040
CR.

NO ACCRUED
INTEREST 376.34
LIABILITIES CR.

UNDERSTATED
LIABILITY 1230
Cr. Which was
ARRANGED BY
5040+376+1230+490 MR.RAJU
= 7136 CRORE
 How did Satyam scam happen?

• Ambitious growth drive

• Audit failure- example., External confirmations of Bank
balances not properly done by PWC
• Deceptive reporting practices—lack of transparency
• ESOPs issued to those who prepared fake bills
• Excessive interest in maintaining stock prices
• High risk deals that went sour
• Above all, greed and lack of ethical values.
Confession – January 7th , 2009

“I did it ”

•The following statement he made in his confession letter –

“Every attempt to eliminate the (balance sheet) gap failed.
Chairman Raju’s Version
• On 7 January 2009, company’s previous Chairman Ramalinga
Raju resigned after notifying board members and the Securities
and Exchange Board of India (SEBI) that Satyam's accounts had
been falsified
• Inflated billing to customers
• Non-existent cash & bank balances $ I bn
• Overstated Debtors $ 100 million
• Operating margin shown high at 24% in Q2 (Sept 2008) as
against 3% real profit margin
• Such manipulation done in earlier years( 6 yrs-$ 1.2 Bn)
• Increased costs to justify higher level of operations
• Attempt to merge Son’s Company ‘Maytas’ with huge land Bank
to bridge the gap failed
Consequences of confession
• Investors- Panicked as Stock plummeted &
Class action suits filed in US
• Employees- stranded in many ways- morally, financially,
legally and socially
• Customers- shocked and worried about the project
continuity, confidentiality and cost over run
• Bankers - concerned about recovery of financial and non-
financial exposure and recalled facilities
• Government- worried about image of the Nation & IT
Sector affecting faith to invest or to do business
 Action after Confession
• Chairman, MD and CEO, CFO, Chief accountant and two
of his associates arrested
• Two Partners of PW (Audit Firm) were also arrested
• Options before Government: i. Allow market forces to
decide; ii. Announce bail out plan; iii. Think out of the box
• Government dissolved existing Board &
nominated 6 of us
• Gave us complete freedom
 So what were the auditors, PricewaterhouseCoopers,
doing…?
SATYAM’S AUDITORS
• There was no cash
with in the company's
banks and yet the
auditors went ahead
and signed on the
balance sheets saying
that the money was
there.
• Not just the cash, even
they even signed off on
the non-existent
interest that accrued on
the non-existent cash
balance!
• The company officials
said they relied on data
from the reputed
auditors.
 THE SEBI
• The Securities and Exchange Board of
India, which says it is 'horrified at the
magnitude of the fraud' had in
December given a clean chit to Satyam
saying that it had not found any
violation of norms relating to takeover
and corporate governance in its
preliminary surveillance of the deal
involving the acquisition of Maytas Infra
by Satyam Computer Services.
• Therefore, the probe would be limited
to the deal between the two listed
entities -- Satyam and Maytas Infra --
and not cover the one involving Satyam
and unlisted firm Maytas Properties.
 Directors and independent directors

•The role of the company's directors, including

independent directors, in the entire episode
too has been exposed after the Satyam
episode.
•Most of them essentially remain 'nodders' in
the boardroom and agree to whatever the
management or the promoters want to push
through.
•The Satyam board, including its five
independent directors had approved the
founder's proposal to buy 51 per cent stake in
Maytas Infrastructure and all of Maytas
Properties, owned by the family members of
Satyam chairman B Ramalinga Raju.
•Despite the shareholders not being taken into
confidence, the directors went ahead with the
management's decision.
Govt. is also guilty

• The government, on its part, was perhaps too

busy projecting the stellar show of the Indian IT
sector and did not find it necessary to launch an
enquiry into these 'complaints,' so to speak.
• Thus by way of negligence the government too is
equally guilty in not having managed to save the
shareholders, the employees and some clients of
the company from losing heavily.
 Bidding Process
• Press release on 9th March inviting registration
• RFP was sent to 141 registered- only 10 submitted EOI
• Out of 10, 7 met the criteria and were sent documents
for execution
• 5 submitted documents but later 2 withdrew for want of
internal approvals leaving 3 in race
• Thus, WL Ross; L&T and Tech Mahindra competed
• Information had to be given to Bidders to facilitate
quoting price per share for preferential allotment
 Who won The race..???

Tech Mahindra wins bid for Satyam

Scam

Ø Tech Mahindra is paying Rs1757 crore

for a 31% stake in the company, or Rs 58
per share.

Ø Satyam Computer Services has now zoomed 15% to Rs 54.20 ahead of

the announcement of the highest bidder for the company on April 13,
2009.

Ø In India this moment was full of praise

for the manner and speed with which the
reconstituted board of Satyam Computer
Services found a strategic investor .