Risk Management

One of Many Issues: Does Satyam Have Enough Cash?

Scandal-ridden computer-services outsourcer, now turning to KPMG and Deloitte for restatement help, will find it nearly impossible to borrow more u...
Marie Leone and Don DurfeeJanuary 14, 2009

While Satyam Computer Services remains in triage mode in the wake of a $1-billion-plus accounting fraud scandal — and the arrest of its ex-CEO and CFO — the company also seems to be running low on cash. Further, it is unlikely that banks will be willing to lend to India’s fourth-largest software services provider until it can produce a set of financial statements that auditors have faith in.

“Whichever bank we talk to will want to see authenticated numbers [before committing to any new loans],” asserted the newly appointed executive chairman of the board, Deepak S. Parekh.

The company’s auditor, Price Waterhouse India, stated on Wednesday that Satyam’s financial results can no longer be relied upon. The audit firm — separately owned in India, but affiliated with PricewaterhouseCoopers — says that it is working with Indian criminal investigators and securities regulators as they scrutinize the accounting scam cooked up by former Satyam chairman, CEO and founder, B. Ramalinga Raju.

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On Wednesday, Satyam announced that it had hired KPMG and Deloitte to help the company restate its results. A spokesman from the company told CFO.com that Price Waterhouse India was still Satyam’s auditor.

Press reports from India also said that CFO Vadlamani had submitted a written statement to the courts there, saying that he had not been directly involved in making improper changes in company accounts, but he was aware of suspicious behavior at Satyam for more than five years. The reports said that he did not admit to any crime.

As to keeping track of deposits, he reportedly wrote: “I was specifically asked not to look into that area of operations.” And he added that bank deposits were handled by CEO Raju and his brother, former Satyam managing director B. Rama Raju.

In his four-page confession letter to the Bombay Stock Exchange last week, ex-CEO Ramalinga Raju wrote that he had created at least a $1-billion fraudulent cash entry on the company’s books. That suggested that its actual cash position was likely little more than $60 million. The Raju brothers and CFO Vadlamani all have been arrested.

Among the global companies reported to be among Satyam’s U.S. and global outsourcing clients are such giants as General Electric, Cisco Systems, Ford Motor, Nestle, Sony, Caterpillar, and the U.S. government being identified in news accounts.

In a press conference held on Monday, new Satyam chairman Parekh noted that the company was working to figure out its funding requirements, adding that “on the books there is a large amount of receivables due. If these receivables come in on time and on the due date, then we will have adequate funds.” However, he cautioned that the company must “have those numbers authenticated, first. Until then, we don’t know.”

Parekh, who is also chief executive of the Housing Development Finance Corp., an Indian bank, said that Satyam will have to make arrangements for incremental funding. But, he rhetorically asked, “when a company is in such dire conditions, which bank is willing to provide funding?”

He assured investors, however, that the board will meet in the next few days to discuss how to raise funds, including “how to raise money in advance from receivables,” suggesting that the company may securitized those assets or negotiate with customers for early payment. “We have AAA clients. Perhaps we can provide incentives to get some of them to pay early.”

As to the auditor situation, Parekh said on Monday only that full board approval would be needed before a new auditor is appointed.

There is speculation that a government bailout would be needed to keep Satyam afloat and stave off massive layoffs, according to a report from Reuters.

On Jan. 9, the Indian government ousted the Satyam board of directors, and seized control of the director appointment process. Three of the 10 board seats have been filled so far by Parekh; Kiran Karnik, former president of National Association of Software and Service Companies; and C. Achuthan, director of the National Stock Exchange and a former member of both the Securities and Exchange Board of India and Securities Appellate Tribunal.

The new board’s progress is hobbled in some ways, however. The speed at which it can move to clean up the mess “depends on how soon we can appoint a new CEO and new CFO and how soon we can get the accounts restated,” said Parekh.

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