Satyam Shares

The chairman of Satyam Computer Services, a leading Indian information technology company that serves numerous Fortune 500 companies, resigned on Wednesday after disclosing major accounting irregularities, sending Satyam’s shares down 77 percent, The New York Times’s Heather Timmons and Bettina Wassener reported.

Ramalinga Raju resigned after revealing that the company’s financial position had been massively inflated during the course of the company’s expansion from a handful of employees into an outsourcing giant with 53,000 employees and operations in 66 countries.

Mr. Raju said Wednesday that 5.4 billion rupees, or $1.04 billion, of the 53.6 billion rupees in cash the company reported at the end of its second quarter that ended in September were nonexistent.

In a lengthy statement to the Bombay stock exchange, he described how the gap had grown over several years. “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 company operations grew,” his statement said.

Satyam provides systems and software, and serves as the back office for some of the largest banks, manufacturing and media companies in the world. Clients include General Electric and General Motors.

In some cases, the company is responsible for keeping track of its clients’ own transactions with their customers, and the clients’ own books.

Satyam, which in a separate statement said it was “shocked” by Mr. Raju’s revelations, has been listed on the New York Stock Exchange since May of 2001 and on Euronext since January 2008. The company is audited by PricewaterhouseCoopers, which had no immediate comment.

Satyam has been under scrutiny in recent months, after an October report that the company had been banned from World Bank contracts for installing spy software on some World Bank computers. In December, the World Bank confirmed that Satyam had been banned but did not elaborate on the cause.

Also in December, Satyam’s investors revolted after the company proposed buying two firms with ties to Mr. Raju’s sons. That acquisition, was “the last attempt to fill the fictitious assets with real ones,” Mr. Raju said in his statement Wednesday.

The scandal immediately raised questions over accounting standards in India as a whole, as observers asked themselves whether similar problems existed elsewhere. The risk premium for Indian companies will rise in investors’ eyes, Nilesh Jasani, India strategist at Credit Suisse, told The Times.

News of the scandal — quickly compared to the Enron scandal in the United States — sent jitters through the entire Indian stock market on Wednesday, sending the benchmark Sensex stock market index down 7 percent by late afternoon.

“This was a company which had the most high profile independent director. It had an auditor of significant repute,” Tarun Siodia, head of research at Andand Rathi, told Reuters. “Despite that, if such an event can occur, then why not other companies? That is going to raise bigger issues.”

R.K. Gupta, managing director at Taurus Asset Management in New Delhi, also speaking to Reuters, added: “If a company’s chairman himself says they built fictitious assets, who do you believe here? Not only Satyam, this has put a question mark on the entire corporate governance system in India.”

Just a few months ago, Mr. Raju was trying to convince investors that the company was sound. In October, he surprised investors with better than expected results, saying he was “pleased” that the company had “achieved this in a challenging global macroeconomic environment, and amidst the volatile currency scenario that became reality.”

But by late December, it seems he had little support from board members or investors: Four of the company’s directors resigned in recent weeks.

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Israel Halts Gaza Assault for 3 Hours, Hamas Agrees

GAZA CITY, Gaza – Israel ordered a pause in its Gaza offensive for three hours Wednesday to allow food and fuel to reach besieged Palestinians, and the country's leaders debated whether to accept an international cease-fire plan or expand the assault against Hamas.

With criticism rising of the operation's spiraling civilian death toll and Gazans increasingly suffering the effects of nonstop airstrikes and shelling, Israel's military said opened "humanitarian corridors" to allow aid supplies to reach Palestinians.

Israeli military spokesman Peter Lerner said the "recess in offensive operations" was aimed at allowing in supplies and fuel and would last from 1 p.m. to 4 p.m local time (6 a.m. to 9 a.m. EST). He said similar lulls in the coming days would be considered.

However, Lerner said that even during the pause "for every attack against the army, there will be a response." Gaza residents reported scattered gunfire and explosions even after it was supposed to have gone into effect, but the scale of fighting appeared to drop.

As Israel's leadership met in the morning in Tel Aviv, sounds of heavy gunfire and thick plumes of smoke engulfed the Zeitoun neighborhood east of Gaza City. Israel said it struck 40 Hamas targets during the hours of darkness. Gaza health officials said new strikes Wednesday morning killed eight people.

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Satyam chairman Ramalinga Raju resigns

Hyderabad, Jan 07: Under attack over the USD 1.6 bn acquisition fiasco of firms promoted by his family Satyam ComputerS Chairman B Ramalinga Raju resigned on Wednesday and said he would subject himself to the "laws of land". 
Raju in a letter to the company’s board accepted that the balance sheets were manipulated to show fictious balance of Rs 5040 crore. 
Notably, no board member had any knowledge of the real situation of the books. Raju also added that the attempts to eliminate manipulations have failed. 
There was a reported revenue of Rs 2700 crore in the Q2FY09 against the actual Rs 2112 crore – an artificial revenue of Rs 588 crore. "Under the circumstances 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 continuance is just to ensure enhancement of the board over the next several days or as early as possible", B Ramalinga Raju said. Reacting to the shocker, India Infoline chairman Niramal Jain said: “This is utterly shocking. This came as a root schoker for the India Inc which in terms of corporate governance has done well in the past years.” The news came amidst reported takeover bid by many banks. Meanwhile, Satyam shares nosedive nearly 54 per cent at Rs 83 after resignation of chairman, managing director. DSP Merrill Lynch terminates its engagement with Satyam Computer, the IT firm informs BSE. Satyam, considered a ripe proposition for acquisition, was pushed into crisis after Raju was forced to abandon the acquisition of Maytas Infrastructure and Maytas Properties promoted by his son. In a regulatory filing the company said Raju would continue to be the chairman till the board is expanded. The resignations, ahead of January 10 board meeting pushed the company into crisis and paved the way for immediate restructuring of the board and the management.

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