Following is the full text of the letter sent by Satyam Computer Services Ltd chairman B.Ramalinga Rajuto the company's board of directors:
It is with deep regret and tremendous burden that I am carrying on myconscience, that I would like to bring the following facts to your notice:
1. The Balance Sheet carries as of September 30, 2008,
a) Inflated (non-existent) cash and bank balances of Rs 5,040 crore (asagainst Rs 5,361 crore reflected in the books);
b) An accrued interest of Rs 376 crore, which is non-existent
c) An understated liability of Rs 1,230 crore on account of funds arranged byme;
d) An overstated debtors' position of Rs 490 crore (as against Rs 2,651reflected in the books);
2. For the September quarter(Q2) we reported a revenue of Rs 2,700 crore andan operating margin of Rs 649 crore(24 per cent of revenue) as against theactual revenues of Rs 2,112 crore and an actual operating margin of Rs 61 crore(3 per cent of revenues). This has resulted in artificial cash and bank balancesgoing up by Rs 588 crore in Q2 alone.
The gap in the balance sheet has arisen purely on account of inflated profitsover several years (limited only to Satyam standalone, books of subsidiariesreflecting true performance).
It has attained unmanageable proportions as the size of the companyoperations grew significantly (annualised revenue run rate of Rs 11,276 crore inthe September quarter, 2008, and official reserves of Rs 8,392 crore).
The differential in the real profits and the one reflected in the books wasfurther accentuated by the fact that the company had to carry additionalresources and assets to justify a higher level of operations therebysignificantly increasing the costs.
Every attempt made to eliminate the gap failed. As the promoters held a smallpercentage of equity, the concern was that poor performance would result in thetakeover, thereby exposing the gap. It was like riding a tiger, not knowing howto get off without being eaten.
The aborted Maytas acquisition deal was the last attempt to fill thefictitious assets with real ones. Maytas' investors were convinced that this isa good divestment opportunity and a strategic fit.
One Satyam's problem was solved, it was hoped that Maytas' payments can bedelayed. But that was not to be. What followed in the last several days iscommon knowledge.
I would like the board to know:
1. That neither myself, nor the Managing Director (including our spouses)sold any shares in the last eight years - excepting for a small proportiondeclared and sold for philanthropic purposes.
2. That in the last two years a net amount of Rs 1,230 crore was arranged toSatyam (not reflected in the books of Satyam) to keep the operations going byresorting to pledging all the promoter shares and raising funds from knownsources by giving all kinds of assurances (statement enclosed only to themembers of the board).
Significant dividend payments, acquisitions, capital expenditure to providefor growth did not help matters. Every attempt was made to keep the wheel movingand to ensure prompt payment of salaries to the associates. The last straw wasthe selling of most of the pledged shares by the lenders on account of margintriggers.
3. That neither me nor the managing director took even one rupee/dollar fromthe company and have not benefited in financial terms on account of the inflatedresults.
4. None of the board members, past or present, had any knowledge of thesituation in which the company is placed.
Even business leaders and senior executives in the company, such as, RamMynampati, Subu D, T R Anand, Keshab Panda, Virender Agarwal, A S Murthy, HariT, S V Krishnan, Vijay Prasad, Manish Mehta, Murli V, Shriram Papani, KiranKavale, Joe Lagioia, Ravindra Penumetsa, Jayaraman and Prabhakar Gupta areunaware of the real situation as against the books of accounts. None of my ormanaging directors' immediate or extended family members has any idea aboutthese issues.
Having put these facts before you, I leave it to the wisdom of the board totake the matters forward. However, I am also taking the liberty to recommend thefollowing steps:
1. A task force has been formed in the last few days to address the situationarising out of the failed Maytas acquisition attempt.
This consists of some of the most accomplished leaders of Satyam: Subu D, T.R.Anand, Keshab Panda and Virendra Agarwal, representing business functions, and AS Murthy, Hari T and Murali V representing support functions.
I suggest that Ram Mynampati be made the chairman of this Task Force toimmediately address some of the operational matters on hand. Ram can also act asan interim CEO reporting to the board.
2. Merrill Lynch can be entrusted with the task of quickly exploring somemerger opportunities.
3. You may have a 'restatement of accounts' prepared by the auditors in lightof the facts that I have placed before you.
I have promoted and have been associated with Satyam for well over 20 yearsnow. I have seen it grow from few people to 53,000 people, with 185 Fortune 500companies as customers and operations in 66 countries. Satyam has established anexcellent leadership and competency base at all levels.
I sincerely apologise to all Satyamites and stakeholders, who have madeSatyam a special organisation, for the current situation. I am confident theywill stand by the company in this hour of crisis.
In light of the above, I fervently appeal to the board to hold together totake some important steps. TR Prasad is well placed to mobilise a support fromthe Government at this crucial time.
With the hope that members of the Task Force and the financial advisor,Merrill Lynch (now Bank of America), will stand by the company at this crucialhour, I am marking copies of the statement to them as well.
Under the circumstances, I am tendering the resignation as the chairman ofSatyam and shall continue in this position only till such time the current boardis expanded. My continuance is just to ensure enhancement of the board over thenext several days or as early as possible.
I am now prepared to subject myself to the laws of the land and face theconsequences thereof.
(B Ramalinga Raju)
Copies marked to:
1. Chairman SEBI
2. Stock Exchanges.
