Satyam Shares Plunge on Scandal

By HEATHER TIMMONS AND BETTINA WASSENER
The New York Times
Published: Jan 08, 2009

NEW DELHI -- Shares in Satyam Computer Services Ltd. , a leading Indian outsourcing company that counts numerous Fortune 500 companies among its clients, plummeted more than 72 percent on Wednesday after its chairman resigned amid major accounting irregularities that shocked India’s business community and threatens to shake the country’s reputation as a place to do business.

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

In a lengthy statement to the Bombay stock exchange, Mr. Raju described how a gap in the balance sheet had arisen because of inflated profits over several years. “What started as a marginal gap between action 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,” he said.

Mr. Raju had tried to bridge the gap, including a botched attempt in December to buy two construction firms in which the company’s founders held stakes. Satyam has been listed on the New York Stock Exchange since May 2001, and is audited by Price WaterhouseCoopers.

The scandal raised questions over accounting standards in India’s key IT industry, as observers asked whether similar problems might lie buried elsewhere. News of the scandal -- quickly compared to the Enron scandal in the United States -- sent jitters through the India stock market on Wednesday, sending the benchmark Sensex stock market index down 7.5 percent.

“It’s going to be very, very negative. 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.

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. Probably he will face a rigid enquiry. Anyway, things are pretty bad.”

Heather Timmons reported from New Delhi, and Bettina Wassener from Hong Kong.

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