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Satyam: The End Game


Satyam’s case: Now that we know Raju has defrauded the shareholders, on his own admission, it’s time to face facts.

Raju “overstated” cash by 5040 crore, meaning that money does not exist. Interest of 376 cr. on that non-existent cash, also does not exist. Naturally. Satyam needs to pay someone 1,230 cr. because Raju took the money, or so he says. And they’re supposed to get 490 cr. not 2651 cr.

If Satyam were a bank, they would call it an “asset-liability mismatch”. Most likely the US government would buy its bad assets (replace the non-existent cash, for instance) and take over the loans it was never supposed to have.

But Satyam is not a bank. (Hint: Maybe apply now?)

So what happens? There is no money, so how do they pay salaries? Employees are quite likely to look for other jobs – and understandably so. Satyam has 53,000 employees, and if you take the cash – at what, 400 cr. (not accounting for the liability) – that’s about 80,000 per employee, but I assume they will need to pay electricity bills, rent etc., so it won’t even be that much.

But this is a bad job market, and 53,000 resumes aren’t going to be absorbed just like that. Still, customers will be wary; and may withhold payments or even abort contracts.

That would normally be a positive for Infosys, Wipro and TCS, but corp governance of India is under question here. Corporate fraud of this nature does not unwind easy; everyone will be suspicious.

With Raju behind bars soon, and no trust in the top management, and no cash, Satyam is likely to go under. No more acquisition crap – no one will want that. So bankruptcy will be the only way to go. If they owned any land, you can bet your last dollar it was mortgaged to the hilt – or, conveniently transferred to promoters and rented to Satyam through back-dated agreements, like we’ve seen in other cases.

So the impact, for employees, is sad. A company they work for, that they believed was fair, is going under for no fault of theirs; and indeed, no one other than the board, the auditors and the management is liable. In all likelihood the company is bust, and the shares are worth ZERO.

This is horrible for a lot of sectors. Real estate, in Hyderabad for one. The number of payment defaults will be massive, I imagine, plus the rentals should fall dramatically. Consider also that Maytas Infrastructure is run by Raju’s son, and is likely a co-player in the whole deal – and that company was supposed to build the metro and all sorts of infrastructure projects.

Banks – both those working with Satyam (53,000 account monthly credits will be gone), and those that have lent to employees (personal, credit card and home loans). Who? We’ll have to find out. ICICI bank is down 10% as we speak, HDFC 4% and a number of other banks are hurting.

Auditors: The audit of Satyam was down by PriceWaterhouse Coopers. Their report as of 17th August states believed the last results “give a true and fair view of the net profit and other financial information”. It’s now obvious they didn’t even verify cash and bank balances – so were they in the know? Time will tell, but now every company audited by PWC is suspect.

Corp governance in general will be looked at carefully, so foreign money might fly out. I say “might” because there is much more fraud happening in the US and Europe, so one can’t say for sure.

Lastly, the shares are likely to go to zero. This will cause payment issues at brokers who have them on margin or whose clients went long after that sudden 50% upmove.

In all the impact is negative, very negative. Unless there is some serious action taken in the next 24 to 48 hours, our markets are hosed. (I don’t know what we can do, but the powers that are must know)


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