As somebody had rightly put it, Ramalinga Raju had, in one single stroke achieved what LeT (Lashkar-e-Toiba) could not in many years. He has marred the reputation of
How could one fool so many people? Satyam’s board had as many independent directors as it could manage – among them
I simply cant believe this.
I would not be surprised if, prior to letting the cat out, Raju (etc) had shorted Satyam shares or ADR and made a tidy amount of money. I would not be surprised if ICAI slaps its maximum fine (Rs 5 Lakh!?) and let PWC walk. The hands that should go up in a voting process could be tied up in partnership deeds involving PWC or its affiliates.
What tests my logic is how on earth an audit firm miss Rs 5000 Crore Cash/Bank balance? Did Satyam forge the bank statements? Even though they forged it and produced it for audit, what happens to 3rd party confirmation letters sent by auditors to banks? The banks are supposed to send the confirmations directly to the auditors.
How can you not verify an asset which makes up 80% of the balance sheet?
Every deed should have a justification or rationalisation. In order to understand it better, let’s put ourselves in Raju’s shoes.
One strong motive would be to avoid Satyam being a takeover target. Satyam’s reported OPM (OPM is one of the key yardsticks with which analysts rank similar companies. Higher OPM within the same industry is always the first thing that analysts look for. It indicates that the company can command premium pricing for its services.) was 24% while in reality it was 3% - as per Raju’s letter to the board. With a less than industry average OPM, institutional investors (makes up 88% of the total share holding) could dump the shares which would resulted in an increase in the float as well as a decrease in price. Perfect for a predator. Raju might lose his job. He could have been mortified by that thought initially. To protect that, he might have fudged the books, and as he himself has put it, “it was like riding a tiger”. Not an enviable position, of course.
Another motive is the greed for cash (which he denies in his letter). Maybe Satyam had 24% OPM and Raju had siphoned the money off and thought that by acquiring Maytas he could plug the hole at least for some more years. In that case, the letter to the board could be a red herring.
Another scenario could be this – Due to the real estate slump, Maytas was struggling and he had to do something which could save both. With that land bank on the assets side of the balance sheet and by revaluing it, he could plug the hole. He would, of course, not pay Maytas anything in cash because he had none.
Whatever the case maybe, the fact remains that the balance sheet has a big hole. Did the low margins cause the hole or was it plain robbery? By acquiring Maytas, who was he trying to save - himself or Satyam or Maytas?
“Creative accounting” is nothing new. Companies do it all the time. Take Jet Airways for example, in a lean quarter, it had switched its depreciation policy to come up with $180 Million extra profit. Similarly HCL tech recognised $80 Million revenue when rupee appreciated against the dollar but ignored the losses when the reverse happened. This was due to its large hedging positions. Ranbaxy refused to provide for $180 million losses on derivative contracts. Reliance communications did not recognise $80 Million loss on future FCCB conversions.
These practices are called “Creative accounting”. These companies are walking on a very thin line between the best practices and allowed practices.
But Satyam was not being creative. This is creation itself and Raju is the creator.
What a paradox! I mean name of the company.
