Why did B. Ramalinga Raju do it? No, we are not talking about why and how he fooled all of us for seven years by presenting blatantly false financials of his company, Satyam Computer Services. We are more concerned about the timing of his sensational confession. What really makes a fraudster listen to his conscience? Or did he do it under duress because of pressure from his family members, friends and professional colleagues? Did he just wake up on 7 January and decide that he wanted to become the honest gentleman that he was way back in the 1980s? Or is there a more sinister reason to explain the revelations?
There are several conspiracy theories to explain the origins of the letter that Raju wrote to the Satyam board, admitting his guilt. But we will try and separate the grain from the chaff. He did it for the 'larger good' of everyone he knew, including himself. In retrospect, it may turn out to be a master stroke. Thanks to his 7 January letter, Raju has possibly saved Satyam, the group firms managed by his sons, friends and colleagues, and the politicians who helped him in the past. In an ironical twist to the tale, he may have saved himself from a long term behind the bars.
The fact is that Satyam as a company was about to collapse under its own financial weight. With a 3% margin, as Raju claimed, almost non-existent cash balances, with no hope of a new pipeline after Raju had pledged most of his personal shares with institutions, which sold them off, huge liabilities and receivables, and highly inflated revenues and profits, the company didn't have the money even to pay salaries in January 2009. Kiran Karnik, one of the six government-appointed directors on Satyam's board, has publicly said that the company needs nearly Rs 2,000 crore cash over the next three months.
In fact, this is the reason why the failed merger with group firms, Maytas Infrastructure and Maytas Properties, for Rs 8,000 crore was critical for Raju's survival. In one stroke, it would have cleaned up Satyam's balance sheet. The deal, which was opposed by institutional shareholders as the two Maytas firms were controlled by Raju's sons and, therefore, smacked of conflict of interest, would have infused new assets and also ensured new revenue and profit streams. For example, Maytas Properties possesses a land bank of 6,800 acres, with the ability to construct 245 million sq ft of built-up space.
The Satyam Saga
|1991||IPO over-subscribed by 17 times; company gets its first Fortune 500 customer in John Deere & Co.|
|1993||Awarded ISO 9001 certification. Signs joint venture with GE, another Fortune 500 company.|
|1999||Satyam Infoway (Sify) becomes the first Indian Internet firm listed on the Nasdaq.|
|2000||Company merged with Satyam Enterprise Solutions (SES) in a way that benefits Srini Raju of SES.|
|2001||Satyam Computer Services listed on the NYSE (SAY).|
|1999-2001||Its stock was one of the 10 that Ketan Parekh was rigging.|
|2002||The Dept of Co Affairs seeks clarification on alleged violation of the Companies Act.|
|2004||Acquires Citisoft and Knowledge Dynamics. Features in the Forbes Top Asian Companies.|
|2005||UK-based IT firm Upaid files case against Satyam for alleged fraud and forgery.|
|2006||Company says 'Revenue exceeds US$1 b'. Gets award from Institute of Internal Auditors, US.|
|2008||Announces acquisition of Maytas Prop and Maytas Infra. Deal shelved after outcry.|
|2009||Raju confesses to Rs 7,000-crore fraud; arrested. Satyam board reconstituted.|
At the Satyam's board meeting on 16 December 2008 to discuss the merger, Ram Mynampati, a former director, disclosed that there was little future in infotech as accelerated growth was difficult in the current scenario, prices and margins were under pressure, and there was discomfort about anti-outsourcing voices emanating from the US, especially from the new President Barack Obama. Therefore, entry in construction and infrastructure seemed like an ideal de-risking strategy. If things had gone according to plan, Raju could have easily jumped off the Satyam tiger without being 'eaten up'.
When this strategy didn't work, Raju had no option. The only way to save Satyam was to come out in the open, confess to his crimes and hope that the government would act swiftly to save the future of Satyam's 53,000 employees as well as restrict the possible negative impact on the Indian IT story. This is exactly what happened. The future of Satyam, its employees and Indian IT seem much safer today. When we spoke to a few employees, they sounded a bit reticent, but confident. All of them said they were "optimistic that things would be back to normal soon".
Raju's sons were obviously angry. The father had practically destroyed their future. By not being able to go through with the merger, he had made sure that the Satyam scandal would become public knowledge. It could force several state governments, including that of Andhra Pradesh, to cancel the high-profile infrastructure contracts bagged by Maytas Infrastructure and Maytas Properties. At present, the two entities are working on projects worth Rs 30,000 crore, including the prestigious Hyderabad metro rail. Satyam's truth had the potential to severely tarnish the sons' image. And it did. However, the sons' anger could have weighed heavily on a desperate Raju, forcing him to reveal everything.