Thursday, January 8, 2009

Satyam's topsy-turvy plan

The letter sent out yesterday by Ramalinga Raju brought to mind an Agatha Christie story titled Murder in the Mews. A woman is found dead in her house, apparently having shot herself. The gun is in her right hand, but the wound is above her left ear, leading police to believe she has, in fact, been murdered. Evidence points to a blackmailer, but in the end Hercule Poirot discovers it is not murder disguised as suicide, but suicide disguised as murder.
The victim's housemate returned home to find her friend had taken her own life. Wanting to implicate the blackmailer, whom she held responsible for the suicide, the housemate removed the gun from her friend's left hand and placed it in the right, knowing the police would immediately notice the discrepancy.
How does this connect with Satyam? Well, when Ramalinga Raju decided to buy the family-owned Maytas Properties and the family-run Maytas Infra, everybody assumed that Satyam was bailing them out with its huge cash reserve. It now turns out that he was planning to pay them with money that did not exist, thus cleaning up Satyam's balance sheet while acquiring real assets for the company. It wasn't Satyam bailing out Maytas, but Maytas bailing out Satyam.
Maytas, however, simply wasn't valuable enough to justify the price decided upon by Raju, which matched the amount of fictitious cash Satyam was carrying on its books. After the September-October crash hit real estate harder than any other sector, shelling out 1.6 billion dollars, most of it for an unlisted firm, was never going to fly. Had Raju acted a few months earlier, he might have managed to push the plan through, though opposition from insitutional investors was guaranteed.


Anonymous said...

Your analysis assumes that the letter that was circulated yesterday is a fact. May be it too was a big lie and possibly the best alternative for Raju. Who knows what lies beneath!

Girish Shahane said...

I don't think Raju's told the whole truth for sure. Many more people must have been involved in a fraud of such magnitude. But the Maytas deal made no sense at all, and the new revelations paint a picture that has a weird kind of logic backing it.
Like sports professionals tempted by performance-enhancing drugs, Raju pumps up the balance sheet to keep up with the big guys, particularly Infosys. As the companies involved get larger, the corresponding lies have to get bigger as well. Share prices begin to fall, making Satyam a takeover target, and Raju's stake in the company is too small to prevent such a move, which would expose his falsifications. He opts for a radical 'diversification plan', the catastrophic failure of which leaves him with nowhere to hide.

Abhilash said...

One cannot describe whats happend with this whole affair in fewer words than you have. Of course, the hole appears much too big to have been covered up so easily for so long. More stuff will emerge i guess.

Girish Shahane said...

Thanks Abhilash, for the comment and the link.