Fraud-Hit Satyam's Loss Narrows to $28 Million After Mahindra Acquisition
Satyam Computer Services Ltd., the software exporter embroiled in India’s biggest corporate fraud probe, reported a narrowing of full-year loss in its first annual earnings announcement in two years.
The net loss totaled 1.25 billion rupees ($28 million) in the 12 months ended March 31, from 81.8 billion rupees a year earlier, Hyderabad-based Satyam said today.
The disclosures may ease concern among shareholders of Tech Mahindra Ltd., whose chairman Anand Mahindra said last year he was taking a “very calculated risk” in buying Satyam. The publication of financial reports may also help the company to bid for new orders and is a crucial step toward a possible merger with Tech Mahindra, Satyam’s largest shareholder, according to Mumbai-based analyst Pralay Kumar Das.
“Not having financials bars IT vendors from getting into bidding rooms for a lot of deals,” said Das, an analyst at Elara Securities India Pvt. “Now that they have these financials in place, they’ll be able to get more of those orders.”
Satyam, which delayed reporting its annual accounts after former Chairman Ramalinga Raju disclosed in January 2009 that he overstated the company’s assets by $1 billion, announced its audited earnings for the fiscal years ended March 2009 and 2010.
The software-services provider’s shares rose 0.2 percent to close at 98.95 rupees in Mumbai trading before the results were announced. The stock declined 43 percent last year after a 62 percent slump in 2008.
‘Deleted or Destroyed’
Satyam detailed its results in a 25 page statement that included several observations from the auditors and notes from the management on financial irregularities it found during the course of its investigations of the accounts dating back to April 1, 2002. The overall impact of the fictitious entries and unrecorded transactions amounted to 67.6 billion rupees, according to the statement.
“There could be other instances of possible diversion that remain undetected,” according to the notes. “Certain documents and information were either unavailable or couldn’t be located. There was evidence suggesting that information might have been deleted, or destroyed during the period leading” to Raju’s disclosure, Satyam said.
Investors in the U.S., where Satyam sold American depositary receipts in 2001, filed at least a dozen class-action lawsuits that have been consolidated before U.S. District Judge Barbara Jones in New York. On Nov. 9, Satyam and former auditors Price Waterhouse and Lovelock & Lewes said the U.S. lawsuits should be dismissed because the litigation belongs in India.
The software exporter saw an “exodus” of clients after the disclosure of the fraud and until its takeover by Tech Mahindra, Chairman Vineet Nayyar said at an earnings briefing today. “We have been able to successfully dispose off most of the baggage from the past, except the class-action suits. We are like a patient convalescing and raring to go, and it will take about two years for us to fully recover.”
Judge Jones in January granted Raju and his brother Rama Raju, Satyam’s former chief executive officer, pauper status in U.S. litigation, meaning the two men won’t have to pay filing fees and other court costs tied to the litigation because of their financial condition.
India’s Central Bureau of Investigation, which has charged Raju and eight others including his brother Rama and former finance head Srinivas Vadlamani of faking invoices and falsifying accounts, in January filed fresh charges against Raju and five others. Raju, who was in custody in India since January last year, won bail last month from a court in Hyderabad.
Sales at Satyam, which maintains computer systems and provides back-office support for Cisco Systems Inc., GlaxoSmithKline Plc and other clients, declined 38 percent to 54.8 billion rupees in the year through March 2010, from 88.1 billion rupees in the previous 12 months.
The latest results were audited by Deloitte LLP, Sridhar Maturi, a spokesman at Satyam said.
Satyam said Sept. 24 its ADRs will be delisted from the New York Stock Exchange, effective “on or about” Oct. 14 and may trade in the over-the-counter market.
The company may become U.S. GAAP compliant in about six to eight months, Nayyar said. “Given the trauma we’ve been through, we’ve made a remarkable recovery.”
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