Published January 12, 2009

Satyam CFO arrested, new board appointed

Board to focus on restoring credibility, customer confidence

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(HYDERABAD) Deepak Parekh, chairman of Housing Development Finance Corp, and two directors were appointed to run Satyam Computer Services Ltd as India detained the software company's founder in the nation's biggest corporate fraud.

Srinivas: Satyam's chief financial officer was arrested yesterday and remains in judicial custody until Jan 23

'First we need to go and assess the magnitude of the issue,' Mr Parekh told Bloomberg in a telephone interview. 'Then we have to work on the re-statement of accounts.'

Kiran Karnik, ex-president of the nation's software industry lobby group, and former regulator C Achuthan were also appointed to Satyam's board, Corporate Affairs Minister Prem Chand Gupta said in New Delhi yesterday. The previous directors were sacked last Friday when chairman Ramalinga Raju was arrested.

The new management will work to retain Hyderabad-based Satyam's customers, including Telstra Corp, and safeguard 53,000 jobs. Satyam was sued by investors in at least three class action lawsuits in the US following the plunge in its shares after Raju said that he falsified accounts for several years.

'The board's first priority will clearly be to restore the company's credibility, customer confidence and employee morale, and also to safeguard the interests of investors and other stakeholders,' Mr Gupta said. 'I'm confident these persons will be able to give the kind of leadership to the company which is required.'

Police stepped up their investigation into the case, having charged Raju and his brother B Rama Raju with criminal conspiracy and forgery last Friday after Raju said that profits had been falsified for years and quit.

The brothers are being held in jail after they were taken into judicial custody until Jan 23.

Chief financial officer Vadlamani Srinivas was also sent to the same jail yesterday after he was taken into judicial custody until Jan 23, his lawyer said.

Police raided the residences of the arrested executives in Hyderabad, the southern Indian city where Satyam is based, as part of the investigation, VSK Kaumudi, Inspector General of Police told Reuters.

New York-listed Satyam welcomed the reconstitution of the board, saying that it would ensure the outsourcer's continued operations, help maintain customer confidence and staff morale, and restore investor trust.

'This is a vital stabilising development for Satyam, and it marks the beginning of a new chapter in the company's history,' a company spokeswoman said. 'It is the best news we've received in the past four weeks.'

The accounting fraud at Satyam was revealed by Raju last Wednesday. The company's stock has since been battered and its valuation plunged to US$330 million at last Friday's market close from more than US$7 billion six months ago.

The scandal has cast a cloud over foreign investment in Asia's third-largest economy and over its once-booming outsourcing sector, which posted stunning sales growth for years and lavished investors with handsome returns.

The agenda of the new board's meeting was not disclosed but analysts said that it would likely focus on ways to retain existing clients such as General Electric and Nestle, and how to guarantee working capital.

Stand-in chief executive Ram Mynampati said last Thursday that the scandal had pushed Satyam, which specialises in business software and back-office services, into a crisis of unimaginable proportions and that liquidity was not very encouraging. -- Bloomberg, Reuters