70% of Satyam's equity changes hands as accounting scandal rattles the scrip

Satyam Computer Service tanked 77.69% to close at Rs 39.95 as chairman Ramalinga Raju resigned after announcing the books of accounts were artificially inflated.

The company made the announcement at 11:34 IST today, 7 January 2009.

Around 47.30 crore shares or, 70.19% of Satyam's equity, was traded on the BSE and the NSE combined.

Meanwhile, the BSE Sensex was down 657.84 points, or 6.38%, to 9676.48.

The stock hit a low of Rs 30.70, also its 52-week low. It hit a high of Rs 188.70 so far during the day. The stock had a 52-week high of Rs 544 on 30 May 2008.

The stock had underperformed the market over the past one month till 6 January 2009, falling 20.19% as compared to the Sensex's 15.29% rise. It had also underperformed the market in the past one quarter, falling 39.14% as compared to the Sensex's fall of 12.42%.

India's fourth largest software exporter by sales has an equity capital of Rs 134.77 crore. Face value per share is Rs 2.

The current price of Rs 39.95 discounts its Q2 September 2008 annualised EPS of Rs 35.48, by a PE multiple of 1.12.

Raju while announcing his resignation confessed of reporting inflated figures in the accounts of the firm. As per the announcement, Satyam's balance sheet as on 30 September 2008 had inflated cash and bank balances of Rs 5040 crore, inflated debtors of Rs 490 crore and non-existent accrued interest of Rs 376 crore. Against this the liability was understated by Rs 1230 crore.

Raju said the Q2 September 2008 results had overstated operating revenues by Rs 588 crore, thereby overstating the operating profits and cash to that extent

The gap in the balance sheet has arisen purely on account of inflated profits over the period of last several years, Raju confessed adding that 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, Raju said.

Raju said in the last 2 years a net amount of Rs 1230 crore was arranged to keep operations going. He said this was done by pledging all the promoter shares and raising funds from known sources by giving all kinds of assurances. Significant dividend payments, acquisitions, capital expenditure to provide for growth did not help matters. Every attempt was made to keep the wheel moving. The last straw was the selling of most of the pledged share by the lenders on account of margin triggers, Raju said.

The aborted Maytas acquisition deal was the last attempt to fill the fictitious assets with real ones, Raju said. Maytas's investors were convinced that this is a good divestment opportunity and a strategic fit, he said.

Raju ended the statement with an apology to Satyam's staff and shareholders and said he was prepared to face the legal consequences.

Meanwhile, the stake owned by founders of Satyam Computer Services has fallen to 3.6% from 5.1% after institutional lenders sold the stock, the company said after trading hours on Tuesday, 6 January 2009. IL&FS Trust Company had sold 24.52 million shares in Satyam Computer Services that were pledged with it as trustee on behalf of several debenture holders and lenders.

Satyam Computers during trading hours on 18 December 2008 had said its board will meet on 29 December 2008 to consider buyback of shares. The announcement was aimed at soothing investor nerves after the Satyam stock slumped 30.22% on 17 December 2008. Investors had chucked the stock following the company's announcement after market hours on 16 December 2008 of a $1.6 billion deal to acquire Maytas Properties and Maytas Infrastructure, companies run by Raju's sons B Rama Raju and Teja Raju.

Satyam scrapped a $1.6 billion acquisition of companies connected to its chairman after the plan angered investors. The company's total disregard for corporate governance and shareholders was shocking - Satyam had no plan to take the proposal to minority shareholders.

The World Bank said on 23 December 2008 Satyam had been declared ineligible for direct contracts with it for eight years 'for providing improper benefits to Bank staff and for failing to maintain documentation to support fees charged for its subcontractors'.

Satyam Computer Services' net profit rose 3.70% to Rs 597.43 crore on 6.87% increase in net sales to Rs 2700.52 crore in Q2 September 2008 over Q1 June 2008.

Satyam Computer Services is a global business and information technology services company. It delivers consulting, systems integration and outsourcing solutions to clients.