By M.C. Govardhana Rangan and Kartik Goyal
Jan. 17 (Bloomberg) -- Satyam Computer Services Ltd., under investigation for fraud, is in talks with banks to overcome a cash crunch that may leave the software maker without enough money to pay salaries and utility bills.
The government-appointed board is seeking funds, looking for a new chief executive officer and improving revenue collection, Satyam said in an e-mailed statement today. India’s fourth-largest software exporter is being probed after founder Ramalinga Raju said Jan. 7 he overstated profits.
“All efforts are being made to ensure that the employees are paid their salaries on time,” the company said. The board members are “in touch with key customers and so far have not heard of deliveries being affected in any way.”
State Farm Mutual Automobile Insurance Co., the largest home and auto insurer in the U.S., yesterday canceled its Satyam contract, dealing a blow to the Hyderabad-based company’s efforts to persuade customers it can fulfill their orders. Satyam needs clients including FIFA, soccer’s governing body, to keep paying after the government ruled out a bailout and the company said it may take three months to sort out its accounts.
The Satyam episode “is a blot on our corporate image and indicates how fraud and malfeasance in one company can inflict suffering on many and can also tarnish India’s image more broadly,” Prime Minister Manmohan Singh said in Mumbai today.
Pending Payments
Satyam won’t know how much it needs until auditors confirm assets and assess how much clients owe, director Deepak Parekh said on Jan. 15. Satyam has 17 billion rupees ($348 million) of pending payments from customers, he said.
The board will now meet once a week and members will take turns to chair meetings until the government appoints a chairman, today’s statement said.
The board also appointed Brahmayya & Co. as internal auditors of the company and Amarchand & Mangaldas and Suresh A. Shroff & Co. as legal advisers to the board. Directors T.N. Manoharan, C. Achuthan and Mr. S.B. Mainak will make up an audit committee.
“The new board is doing everything to try and stabilize the situation, find a new chief executive officer, reassure clients, but all this takes time,” said Krupal Maniar, a Mumbai-based analyst at ICICI Securities Ltd. “Unfortunately, time is what’s against them.”
Promise to Banks
India’s government has assured state-run banks it won’t hinder their seizure of pledged properties if Satyam’s subsidiaries fail to meet loan payments, the Economic Times reported today.
State-run banks have lent 20 billion rupees to subsidiaries of the computer-services provider and hold securities valued at 27 billion rupees, the report said, citing a finance ministry official who declined to be identified.
Ram Mynampati, removed from the board after a three-day stint as interim chief executive officer, and executive Virender Aggarwal are meeting with customers in the U.S. and Singapore, the company said.
Bloomington, Illinois-based State Farm told Satyam on Jan. 15 that it was terminating the order. “The current uncertainties surrounding Satyam’s future and potential impact to State Farm resulted in this decision,” spokesman Jeff McCollum said in an e-mail yesterday.
Satyam doesn’t comment on specific clients, the company said in a mobile-phone text message.
CEO Speculation
Vivek Paul, the former vice chairman of Wipro Ltd., India’s third-largest computer-services provider, declined to comment on an Economic Times report that he’d join Satyam. Paul quit private equity firm TPG last month, where he had been a partner since leaving Wipro in October 2005.
Satyam rose 21 percent yesterday, after falling 32 percent on Jan. 15. The stock has lost 86 percent of its market value since Ramalinga Raju’s Jan. 7 statement that he fabricated $1 billion in cash and assets.
Mark Mobius, who oversees about $26 billion in emerging- market stocks as executive chairman of Templeton Asset Management, said his fund sold all its shares in Satyam and didn’t lose money because it “got out early.”
“We have analysts on the ground and we had been suspicious for a while,” he said in Kuala Lumpur today. “So we were gradually reducing what we had there.”
Raju, 54, was arrested on Jan. 9. He, his younger brother and former managing director Rama, and former chief financial officer Srinivas Vadlamani have been remanded to judicial custody until Jan. 23.
Police Custody
A court in Hyderabad today sent the three to police custody starting tomorrow for interrogations, Raju’s lawyer Bharat Kumar said in televised comments. Raju will appeal against the court order on Monday, Kumar said.
Judge D. Ramakrishna will separately consider on Jan. 19 a bail application moved on behalf of Raju and the other two. The judge said yesterday he would also pass orders on a plea by the Securities and Exchange Board of India seeking access to Raju for recording a statement on share trading in the company.
“As the reorganization of the board of directors proceeds, the company is better positioned to focus solely on ensuring continued service to customers and restoring stakeholder confidence,” the company said in a statement to the Bombay Stock Exchange today. Satyam also said it paid U.S. workers the first of the two cycles of January wages.
FIFA Role
Satyam is reassuring FIFA, based in Zurich, that the company can continue its role in the 2010 World Cup, Sridhar Maturi, who runs sports marketing at Satyam, said on Jan. 15.
Dilbagh Gill, Satyam’s head of sport, spent two days in Zurich this week with FIFA officials, he said. Satyam, the first Indian company to sponsor a World Cup, is meant to be FIFA’s official information-technology provider until 2014.
Nestle SA, the world’s largest food company and a Satyam client, said this week it is considering alternative solutions to avoid disruption of information-technology operations. Telstra Corp., Australia’s largest telephone company, said Satyam’s disclosure will be a factor when it cuts two of its four major IT suppliers this year.
To contact the reporters on this story: M.C. Govardhana Rangan in Mumbai at grangan@bloomberg.net; Kartik Goyal in New Delhi at kgoyal@bloomberg.net
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