New England Malayalee Association’s blog

January 8, 2009

Satyam fiasco

Filed under: Events,finance — nemausa @ 7:33 pm
Tags: ,

One of the icons of India’s new economy is fast disintegrating as we speak. It is affecting Indian economy in general, thousands of employees personally and puts all the Indian corporate houses in bad light. Ultimate irony is that the company named Satyam is build on mountains of lies. Here’s Deepak Shenoy taking a look at Satyam’s end game in Indian investor’s blog:

So what happens? There is no money, so how do they pay salaries? Employees are quite likely to look for other jobs – and understandably so. Satyam has 53,000 employees, and if you take the cash – at what, 400 cr. (not accounting for the liability) – that’s about 80,000 per employee, but I assume they will need to pay electricity bills, rent etc., so it won’t even be that much.

But this is a bad job market, and 53,000 resumes aren’t going to be absorbed just like that. Still, customers will be wary; and may withhold payments or even abort contracts.

That would normally be a positive for Infosys, Wipro and TCS, but corp governance of India is under question here. Corporate fraud of this nature does not unwind easy; everyone will be suspicious.

With Raju behind bars soon, and no trust in the top management, and no cash, Satyam is likely to go under. No more acquisition crap – no one will want that. So bankruptcy will be the only way to go. If they owned any land, you can bet your last dollar it was mortgaged to the hilt – or, conveniently transferred to promoters and rented to Satyam through back-dated agreements, like we’ve seen in other cases.

So the impact, for employees, is sad. A company they work for, that they believed was fair, is going under for no fault of theirs; and indeed, no one other than the board, the auditors and the management is liable. In all likelihood the company is bust, and the shares are worth ZERO.

This is horrible for a lot of sectors. Real estate, in Hyderabad for one. The number of payment defaults will be massive, I imagine, plus the rentals should fall dramatically. Consider also that Maytas Infrastructure is run by Raju’s son, and is likely a co-player in the whole deal – and that company was supposed to build the metro and all sorts of infrastructure projects.

Banks – both those working with Satyam (53,000 account monthly credits will be gone), and those that have lent to employees (personal, credit card and home loans). Who? We’ll have to find out. ICICI bank is down 10% as we speak, HDFC 4% and a number of other banks are hurting[Satyam: The end Game].

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