In a major development today, B Ramalinga Raju has put in his papers as the chairman of Satyam Computer Services after admitting discrepancies in the company’s balance sheet as on September 30, 2008.
The company informed the stock exchanges and market regulator Securities and Exchange Board of India (SEBI), that B Rama Raju, brother of Ramalinga Raju and the managing director of Satyam, also resigned from his position. However, the Raju brothers will continue in their respective positions until the expansion of the board.
In a letter to the board of directors, a copy of which was filed with the Bombay Stock Exchange and the SEBI, Ramalinga Raju has said that the balance sheet as on September 30, 2008 carried inflated (non-existent) cash and bank balance of INR50.4 billion as against INR53.61 billion reflected in the books.
The books showed non-existent accrued interest of INR3.76 billion and an overstated debtors position of INR4.90 billion (as against INR26.51 billion reflected in the books). A liability of INR12.30 billion, generated by Raju by pledging all the promoter shares, has been understated in the books.
Raju admitted that the company reported revenue of INR27 billion and an operating margin of INR6.49 billion (24% of revenue) in the second quarter ending September 2008, as against the actual revenue of INR21.12 billion and an actual operating margin of INR610 million (3% of revenue). This has resulted in artificial cash and bank balances going up INR5.88 billion in Q2 alone.
According to Raju, the gap in the balance sheet is a result of inflated results over several years. A “last” attempt has been made to fill the gap by acquiring the real estate and infrastructure businesses of Maytas, but it did not materialise, he said. “It was like riding a tiger, not knowing how to get off without being eaten.”
Apparently, none of the board members or senior executives had knowledge about the accounts.
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The news of the resignations and inflated accounts resulted in the tumbling of Satyam stocks by over 50%. According to media reports, the Indian government may refer the Satyam case to the Serious Fraud Investigating Office.
