Page last updated at 16:17 GMT, Thursday, 8 January 2009

India IT firm faces scandal probe

Satyam chairman Ramalinga Raju
Mr Raju had been upheld as a leading entrepreneur

Satyam, India's fourth-biggest software firm, faces an inquiry by the market regulator after its boss stepped down over an accounting scandal.

On Wednesday, chairman Ramalinga Raju revealed that the firm's accounts had been falsified, with cash reserves exaggerated by some $1bn (£661m).

Interim boss Ram Mynampati told media on Thursday that the firm faced a crisis of "unimaginable proportions".

There are fears the scandal will prompt foreign investors to leave India.

Mr Raju wrote a letter to both board directors and the stock exchange about the false accounting on Wednesday, sending shares in the firm tumbling by some 80%.

India's National Stock Exchange removed the firm from its Nifty index before markets were closed on Thursday.

Probe

Talking to reporters on Thursday, Mr Mynampati said: "Our only aim at this time is to ensure that the business continues."

Mr Mynampati said the liquidity situation at the firm was "not very encouraging now". He added that the firm's financial situation was being investigated, including the statements made by Mr Raju about the inflated accounts.

India's stock market regulator, the Securities and Exchange Board of India, said it had started an investigation to examine the selling and dealing of Satyam stock.

"We are concerned about what has happened in Satyam, and the government will take all necessary action to ensure these types of scandals do not take place again," said minister Prem Chand Gupta.

The New York Stock Exchange ceased trading the firm's depositary receipts overnight.

Entrepreneur

Satyam had been seen as one of India's key IT firms and an important exporter, while Mr Raju, its founder, was highly regarded as an entrepreneur.

In his letter Mr Raju said he would subject himself to the laws of the land and face the consequences.

He said that neither he nor the managing director had taken any money from the company and had not benefited from the false accounting.

He added that no board member had been aware of the situation the firm was in.

Consequences

News of the scandal has prompted fears over the future of the IT giant, which specialises in business software.

Analysts say there are concerns more scandals could emerge in the wake of Satyam case, and this could scare investors further.

"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 FACTS
Employs 53,000 people, operates in 66 countries
Won 2008 global award for excellence in corporate governance by World Council for Corporate Governance (WCFCG)
Named as official IT services provider for FIFA World Cups in 2010 and 2014
Ramalinga Raju, Satyam's founder and chairman, won Ernst & Young's 2007 entrepreneur of the year award

Merrill Lynch, which had been asked to seek merger options, terminated its engagement with the firm, citing "material accounting irregularities".

As uncertainty hangs over the future of the firm, questions are being raised over what will happen to employees, who numbered more than 52,000 at the end of September.

There is similar uncertainty over contracts with clients, such as world football body FIFA.

Satyam is the information technology partner for both the 2010 and 2014 FIFA World Cups.

Customers were being informed that it was "business as usual", said news agency Reuters, citing a senior company official.



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SEE ALSO
Press reaction to Satyam scandal
08 Jan 09 |  Business
India IT boss quits over scandal
07 Jan 09 |  Business

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