NEW DELHI, Jan 10 — India’s government yesterday stepped in to take control of embattled outsourcing major Satyam, announcing plans to appoint a new board of directors as the scandal over the company appeared set to widen to include key politicians in the southern state of Andhra Pradesh.
Corporate Affairs Minister Prem Chand Gupta told a news conference the government had barred Satyam’s board from holding its scheduled meeting today and said it would be appointing 10 new directors soon.
“The government is considering appointment of suitable persons as directors of Satyam,” he said, adding that the newly constituted board must meet within seven days.
“The developments so far indicate that the current board of Satyam has failed to do what it was supposed to do,” he added. “The government is committed to punish everyone found guilty, including the auditors.”
Satyam shares plunged for a second day yesterday, to an 11-year low on fears that it may run out of money after its chairman Ramalinga Raju admitted that the company’s accounts had been falsified for years to show inflated profits.
The scandal involving India’s fourth-largest provider of software services may widen to include politicians in Andhra Pradesh as scrutiny shifts to a cosy real estate deal linked to a company controlled by its chairman’s family.
Two days after Raju quit, owning up to a US$1 billion (RM3.23 billion) fraud on the company’s books, questions are being asked about whether he was telling the whole truth.
The fear is that he may have revealed part of the mess in order to cover up a larger one, probably involving powerful people.
Investigators from the Securities & Exchange Board of India (Sebi) are currently in Satyam’s Hyderabad offices; they were joined yesterday by investigators from the Serious Fraud Office.
The Sebi team summoned Raju yesterday evening, but he sent his lawyer S. Bharat Kumar. “Raju has not been keeping well,' his counsel said.
Investigators are keen to know the extent of the fraud, and how Raju had hidden the facts about Satyam from auditors at PriceWaterhouseCoopers.
The 54-year-old businessman quit as chairman this week, saying he had tried to inject the assets of two real estate and infrastructure firms run by his family into Satyam to conceal the hole in its books. When that attempt failed, he wrote in his letter to stock exchanges, the game was up.
Now Maytas, one of these firms which is building the 120 billion-rupee (RM8.14 billion) Hyderabad metro rail, is itself the subject of much debate in the state.
E.A.S. Sarma, a former economic affairs secretary, said he had alerted Sebi earlier to possible dodgy deals and had asked for a probe. Sebi, he said, had cleared the company of wrong-doing.
Sarma now wants an investigation into all the land deals in the state.
“It is no secret in Hyderabad that Raju was well-connected and had enough clout with the Andhra government to get the pick of contracts for his family,” said a person who has known him for two decades. “Chandrababu Naidu trotted him out to visiting dignitaries as an iconic figure and he had Rajashekhara Reddy eating out of his hand.”
Naidu and Dr Reddy are the former and current chief ministers of the state.
Last September, E. Sreedharan, the chief of Delhi Metro Rail, the capital’s showcase infrastructure project, referred to the Maytas deal with the Andhra state government as a “scandal”.
In a letter to India’s Planning Commission, he said “making available (120ha) of prime land to BOT (build, operate and transfer) developer for commercial exploitation was like selling the family silver”.
One line of thought goes that the three per cent margins that Raju recently said Satyam actually operated on were way below the industry norm. Satyam had so far been claiming margins in excess of 25 per cent but Raju has said that was a hoax.
Most big Indian outsourcing companies have operating margins exceeding 20 per cent. This raises speculation that Satyam may have earned good profits over the years but that the money may have been steered towards real estate near Hyderabad.— The Straits Times Singapore
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