B. Ramalinga Raju Letter - Unedited

To the Board of Directors

Satyam Computers Services Ltd.

From B. Ramalinga Raju
Chairman, Satyam Computer Servcies Ltd

Dear Board Members,

It is with deep regret, and tremendous burden that I am carrying on my conscience, that I would like to bring the following facts to your notice:

1. The balance sheet carries as of September 30, 2008

a) Inflated (non-existent) cash and bank balance of Rs 5,040 crore (as against Rs 5361 crore refglected in the books)

b) An accured interest of Rs 376 crore which is non-existent

c) An understated liability of Rs 1,230 crore on account of funds arranged by me

d) An over stated debtor position of Rs 490 crore (as against Rs 2651 reflected in the books)

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2. For the September quarter (Q2) we reported a revenue of Rs 2,700 crore and an operating margin of Rs 649 crore (24 per cent of revenues) as against the actual revenues of Rs 2,112 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 by Rs 588 crore in Q2 alone.


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). 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. It has attained unmanageable proportions as the size of the company operations grew significantly (annualized revenue run rate of Rs 11,276 crore in the September quarter, 2008 and official reserves of Rs 8.392 crore). 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.

Every attempt made to eliminate the gap failed. As the promoters held a small percentage of equity, the concern was the poor performance would result in a takeover, thereby exposing the gap. It was like riding a tiger, not knowing how to get off without being eaten.

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. What followed in the last several days is common knowledge.

I would like the board to know:


1. That neither myself, not the Managing Director(including our spouses) sold any shares in the last eight years-excepting for a small proportion declared and sold for philanthropic purposes.

2. That in the last two years a net amount of Rs 1,230 crore was arranged to Satyam (not reflected in the books of Satyam) to keep the operations going by resorting to pledging all the promoter shares and raising funds from know sources by giving all kinds of assurances (Statement enclosed, only to the members of the board). Significant dividend payments, acquisitions, capital expenditure to provide for growth did not help matters. Every attempt was made to keep the wheel moving and to ensure prompt payment of salaries to the associates. The last straw was the selling of most of the pledged share by the lenders on account of margin triggers.

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3. That neither me, nor the Managing Director took even one rupee/dollar from the company and have not benefitted in financial terms on account of the inflated results.

4. None of the board members, past or present, had any knowledge of the situation in which the company is placed. Even business leaders and senior executives in the company, such as Ram Mynampati, Subu D T R Anand, Kesab Panda, Virender Agarwal, A S Murthy, Hari T, S V Krishnan, Vijay Prasad, Manish Mehta, Murali V, Sriram Papani, Kiran Kavale, Joe Lagioia. Ravindra Penu Metsa, Jayaraman and Prabhakar Gupta are unaware of the real situation as against the books of accounts. None of my or managing directors immediate or extended family members has any ideas about these issues.

Having put the facts before you, I leave it to the wisdom of the board to take the matters forward. However, I am also taking the liberty to
recommend the following steps:

1) A task force has been formed in the last few days to address the situation arising out of the failed Maytas acquisition attempt. This consists of some of the most accomplished leaders of Satyam: Subu D, T R Anand, Keshab Panda and Virender Aggarwal, representing business functions, and A.S.Murthy, Hari T and Murali V representing support functions. I suggest that Ram Mynampati be made the Chairman of this task force to immediately address some of the operational matters on hand. Ram can also act as an interim CEO reporting to the board.

2) Merrill Lynch can be entrusted with the task of quickly exploring some merger opportunities.

3) You may have a ‘restatement of accounts’ prepared by auditors in light of the facts that I have placed before you.

I have promoted and have been associated with Satyam for well over twenty years now. I have seen it grow from few people to 53,000 people, with 185 Fortune 500 companies as customers and operations in 66 countries. Satyam has an excellent leadership and competency base at all levels. I sincerely apologize to all Satyamites and stakeholders who have made Satyam a special organization, for the current situation. I am confident they will stand by the company in this hour of crisis.
in light of the above, I fervently appeal to the board to hold together to take some important steps. Mt T R Prasad is well placed to mobalize support from the government at this crucial time. With the hope that members of the Task Force and the financila advisor, Merrill Lynch (now Bank of America) will stand by the company at this crucial hour, I am marking copies of this statement to them as well.

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Under the circumustances, 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 contribution is just to ensure enhancement of the board over the next several days or as early as possible.

I am now prepared to subject myself to the laws of the land and fact the consequences thereof.

(B. Ramalinga Raju)

Copied marked to:
1) SEBI Chairman
2) Stock Exchanges

posted under - B. Ramalinga Raju Letter, raju's letter, satyam updates, SEBI on Satyam, Satyam Computer services, Satyam fraud, satyam fraud updates, Satyam Computer services updates,

SEBI orders probe into Satyam market operations

Startled by the disclosure of fudging of accounts by Satyam founder B Ramalinga Raju, market regulator SEBI on Wednesday ordered probe B R Raju into share market operations and inspection of the IT company.

"SEBI has ordered an investigation into the affairs relating to buying, selling or dealing in the shares of Satyam Computers," it said in a release.

The probe follows a letter written by Raju in which he disclosed that "accounts provided to the stock exchanges were not true".

The investigation, SEBI said, will ascertain whether any provision of the Act or regulation has been violated.

As a first step, SEBI today ordered an investigation into affairs relating to buying, selling or dealing in shares of Satyam to ascertain if any regulatory provision was violated. Besides, it ordered inspection of Satyam Computer (books).

Giving details of the irregularities, Raju said the company's balance sheet as of September 30 carries "inflated (non-existent) cash and bank balances of Rs 5,040 crore (as against Rs 5,361 crore reflected in the books)."

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It also carries "an accrued interest of Rs 376 crore which is non-existent, understated liability of Rs 1230 crore on account of funds arranged by me, overstated debtors position of Rs 490 crore (as against Rs 2651 crore in the books."

The USD 2-billion Satyam also 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, adding that the gap in the Balance Sheet has arisen purely on account of inflated profits over a period of last several years.

Satyam, meanwhile, said Board member Ram Mynampati has been appointed interim CEO. "We are obviously shocked.. immediate priorities are to protect interest of shareholders, protect the careers and security of its approximately 53,000 associates..," Satyam said in a statement.

A shocked industry called for deeper regulation. "This fraud on the investors and employees... shows a systemic breakdown in audit and board oversight... questions will need to be asked," FICCI President Rajeev Chandrasekhar said.

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FICCI and CII, however, said the Satyam episode should not be seen as a blot on all the Indian firms.

Corporate Affairs Minister Prem Chand Gupta said stern action would be taken under the law.

posted under - Satyam Computer services, satyam updates, SEBI updates, SEBI on Satyam, Satyam india, Satyam Fraud

Sensex Down 750 pts due to Satyam Fraud

The Indian stock market was robbed of its stimulus Wednesday after one of the biggest corporate frauds came to light. In a shocking revelation, Satyam Computer Services Ltd’s promoter and chairman, B Ramalinga Raju admitted to a fraud to the tune of Rs 7,000 crore in the company’s balance sheet.

In a letter to the board, Raju said the company’s cash and bank balance as on Sep 30, 2008, was inflated by Rs 5,040 crore as against Rs 5,361 crore reflected in the books. Further, the balance sheet carried an accrued interest of Rs 376 crore which was non existent, and an understated liability of Rs 1,230 crore on account of funds transferred by Raju. The balance sheet also carried an over stated debtors’ position of Rs 490 crore (as against Rs 2,651 crore in the books).

This triggered a massive sell-off as investors dumped shares across the board, mainly from realty and IT sectors, on fears of corporate governance issues.

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The Bombay Stock Exchange’s 30-share Sensex closed at 9586.88, sharply down 749.05 points or 7.25 per cent from Tuesday’s close. The index touched an intra-day low of 9510.15 from a high of 10469.72.

National Stock Exchange’s benchmark Nifty ended at 2920.40, down 192.40 points or 6.18 per cent. The index touched an intra-day low of 2888.20 and high of 3147.20.

“Raju’s confession came as a shock for the market. Traders got out of realty companies as well on fears that they might also have similar skeletons in the closet. Sharp price in fall of Reliance Industries shares led to further pain,” said senior analyst from a local brokerage.

Not even the second rungs stocks were spared in the mayhem that followed. The BSE Midcap Index lost 7.17 per cent and BSE Smallcap Index fell 6.29 per cent.

“It is one of the worst days for Indian investors as a truly shocking and mind-numbing development transpired in the Indian corporate and stock market history. This has shaken the confidence of investors - both domestic and global -repercussions of which could be felt over the medium-term. Hopefully, this development will now lead to greater weightage being provided to corporate governance standards by companies and investors alike. As far as our view on Satyam Computers is concerned, we have ‘discontinued coverage’ on the stock with immediate effect and would advise current investors to exit the stock and nonexistent investors to stay away,” said Hitesh Agarwal, Head-Research, Angel Broking.

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In the biggest single day fall for a stock, Satyam Computer lost 77 per cent to end at Rs 40.25 on NSE. The scrip touched a low of Rs 30.80 from a high of Rs 188.70.

Jaiprakash Associates (-29.15%), Reliance Communications (-17.02%), DLF (-16.15%) and Reliance Infrastructure (-13.54%) were the other top Sensex losers.

Hindustan Unilever (1.95%), Infosys Technologies (1.67%), Maruti Suzuki (0.53%) Wipro (0.23%) and Grasim Industries (0.13%) were the only Sensex gainers.

The Satyam episode led to 2,124 losers on the BSE and only 364 gainers.

posted under - Satyam Computer services updates, Satyam fraud, Indian markets january 7, satyam fraud updates, Satyam employees in dissarray