Satyam Computer on Wednesday plunged into a deep crisis, as B Ramalinga Raju resigned as its Chairman after admitting to major financial wrong-doings and saying his last-ditch efforts to fill the "fictitious assets with real ones" through Maytas acquisition failed.
The beleaguered IT giant, already under scanner over the aborted acquisition of firms promoted by the Chairman's family, received a rude shock days ahead of its January 10 board meeting, with Raju stepping down along with his brother and Managing Director B Rama Raju.
"It was like riding a tiger, not knowing how to get off without being eaten," Ramalinga Raju said in a letter to Satyam's board of directors, wherein he listed major financial wrong-doings over the years to inflate the profits.
Listed at New York Stock Exchange, the company could face regulatory action in the US, analysts said.
While Raju recommended DSP Merrill Lynch be entrusted the task of "quickly exploring some merger opportunities," the company informed the stock exchanges that the investment banker has terminated its engagement with Satyam.
Noting that every attempt to eliminate gaps in balance sheet, purely on account of inflated profits over several years, failed, Raju said: "I am now prepared to subject myself to the laws of the land and face consequences thereof."
Low percentage of promoter equity in the company, where four independent directors resigned in the last two weeks over the acquisition fiasco, could lead to a takeover and expose the gap, he said in the letter, also sent to regulator SEBI. The promoters' share in Satyam has now dipped to just over 3 per cent that too is pledged with lenders.
Raju will continue as Chairman till the Board finds a replacement, even as speculation was rife that Satyam President Ram Mynampati would take over as Chairman.
Rama Raju would also continue as Managing Director, but only till the time the Board is expanded.
Ramalinga Raju requested the Board to "hold together" to take some important steps, while hoping that one of the Board members T R Prasad was "well-placed to mobilise support from the government at this crucial time."
Satyam is the country's fourth largest IT firm and has has over 51,000 employees.
Giving details of the financial 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."
The balance sheet also carries "an accrued interest of Rs 376 crore which is non-existent, an understated liability of Rs 1230 crore on account of funds arranged by me (Raju), an overstated debtors position of Rs 490 crore (as against Rs 2651 crore reflected in the books," Raju said.
He further said that Satyam 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.
"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," Raju further said.
"It has attained unmanageable proportions as the size of the company operations grew significantly... 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," he said.
"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," he said.
Raju, however, claimed that neither he, nor 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.
Raju further said he or the company's MD did not take "even one rupee/dollar from the company and have not benefited in financial terms on account of the inflated results."