Published January 19, 2009

SATYAM SCANDAL

Raju said to have siphoned cash from firm

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NEW DELHI The founder of Satyam Computer Services, B Ramalinga Raju, skimmed huge amounts of cash from the company, rather than padding its books as he has claimed, a person involved in the investigation of the company said last Saturday.

Raju: Allegedly used family-registered firms to divert Satyam money

Investigators looking into the fraud that has been called 'India's Enron' have found a 'maze' of about 300 companies related to Raju that were used to 'siphon' as much as US$1 billion in cash from Satyam, said a senior official involved in the inquiry, who was granted anonymity to discuss developments in the case.

The picture emerging from the investigation of Satyam, one of India's largest technology outsourcing companies, is vastly different from the one painted by Raju in a confession that stunned corporate India earlier this month.

Raju, who was Satyam's chairman, said in a letter to the company's board on Jan 7 that about US$1 billion of the company's cash was 'non-existent' and that he had falsified its profits for years to avoid losing control of the company. But the person involved in the investigation said that despite Raju's claim that he had padded profits, he relied on hundreds of companies to divert money from Satyam.

These companies are registered to Raju and members of his family.

Figuring out what, exactly, happened at Satyam 'is becoming increasingly complicated', this person said, adding that investigators had not figured out where all the missing money wound up.

In his letter to the Satyam board, Raju said that a marginal gap in the balance sheet had grown over several years to 'unmanageable proportions', and said he had dressed up the company's profits to avoid a takeover. He said he had kept the illusion going with the help of his own shares and loans against his assets, and that neither he nor his brother, B Rama Raju, 'took even one rupee/dollar from the company'.

Instead, the person involved in the investigation said, the entire US$1 billion Raju said was faked may have actually been earned by the company but then skimmed from it.

A new, government-appointed Satyam board met last Saturday to discuss how to alleviate a severe cash squeeze at the company and to fill the vacant management positions. Board members had said previously that Satyam might ask some of its 600 customers (which include General Electric, General Motors and Nestle) to pay bills early.

Satyam has some 17 billion rupees (S$522 million) in payments pending from customers, the new board said recently. The company is making 'all efforts' to pay salaries, Satyam said.

The board has not named a chief executive or chief financial officer and said it would meet weekly until one is found.

An Indian metropolitan court in the southern city of Hyderabad ordered the former chairman, managing director and chief financial officer of Satyam to be taken into police custody for four days from yesterday.

Also yesterday, the Economic Times reported that the new board of Satyam has asked Citigroup and BNP Paribas, its bankers, to help with immediate funding needs.

'We talked to Citibank and BNP Paribas and requested them to understand the situation, provide additional funding and give them (Satyam) more time to repay loans,' Deepak Parekh, a senior banker and a newly-appointed board member, was quoted as saying. -- NYT, Reuters