January 7, 2009, 5.52 pm (Singapore time)

Latest update
Satyam chief quits, says profits inflated

* Satyam chairman resigns, says profits had been inflated
* Shares fall more than 80%, main index down 7.2%
* Banker Merrill Lynch terminates Satyam ties

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BANGALORE - The head of India's embattled Satyam Computer Services resigned on Wednesday and said the firm's profits had been inflated, sending the stock down more than 80 per cent and roiling investor confidence.

India's biggest corporate scandal in memory threatens future foreign investment flows into Asia's third-largest economy and casts a cloud over growth in its once-booming outsourcing sector.

Ramalinga Raju, founder and chairman of Satyam, India's fourth-largest outsourcer, said in a statement the company's profits had been inflated over recent years but no other board member had been aware of the financial irregularities.

'The gap in the balance sheet has arisen purely on account of inflated profits over a period of the last several years,' Mr Raju said, adding he was prepared to face up to the legal consequences.

The shocking revelation came after Satyam's botched attempt last month to buy two construction firms partly-owned by the company's founders and as the World Bank, a major customer, barred Satyam from new business, citing 'improper benefits' given to Bank officials. Satyam has demanded those comments be retracted.

The company's value has slumped to little more than US$500 million from around US$7 billion as recently as last June.

'I think there is no future for this stock. This case for India is similar to what happened to Enron in the US,' said Jigar Shah, senior vice-president at Kim Eng Securities.

'It will not stop at Satyam. Many more companies will come into scrutiny like that. There is a strong possibility investments in India will be affected.'

The scandal set off a wave of condemnation from Indian market regulators and government officials, and prompted banker Merrill Lynch to terminate its engagement with Satyam.

Mr Raju's statement sent Indian equity markets into a tailspin, with Bombay's main benchmark index tumbling 7.2 per cent in a firmer session for world markets.

'It's going to impact the Indian outsourcing industry. Customers are going to be concerned about offshoring firms in India,' said Sudin Apte, country head of Forrester in the western city of Pune.

Satyam, which specialises in business software and back-office services for clients such as General Electric and Nestle, said it would go ahead with a planned board meeting on Saturday to consider a share buyback following a rash of broker downgrades even after its acquisitions were called off last month. -- REUTERS