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Satyam: A fairy tale warning
January 31, 2009
Ramalinga Raju had an extensive education, in India and in the United States. But no one told him about the goose that laid the golden eggs.
Re-constructing what Mr Raju did, that was the key shortcoming in his plan for grand larceny. The more you think of what has happened to Satyam [Get Quote] and its jailed chairman, the more obvious it becomes that the problem was the failure to realise that while he might get away with stealing eggs, the goose itself should not be killed.
Unlike in the fairy tale, he probably never meant to kill the goose. As a Satyam director argued shortly before Mr Raju went public with his confession statement, here was a man who had built Satyam from scratch into a multi-billion dollar, globe-circling business, who had hired 50,000 employees, and who had become a nationally and internationally recognised (and even respected) figure.
Would he simply throw all that away?
The answer must be that he never expected to throw it all away. All he wanted was more money than he had. Before they began selling their Satyam shares, or pledging them in return for loans, Ramalinga Raju, his brother Rama Raju and their wives owned 45 million Satyam shares.
At a price (before the crash last year) of Rs 500 and more per share, that would have been worth Rs 2,250 crore or Rs 22.5 billion. It is clear that this was not enough for Mr Raju, and he was not above stealing the golden eggs in the Satyam vault.
The theft worked, because the Rajus' 36 per cent holding in Maytas Infrastructure, which is publicly quoted, was worth Rs 1,750 crore or Rs 17.5 billion (again, before the crash). The wholly family-owned Maytas Properties was valued at Rs 6,700 crore or Rs 67 billion, if you accept the Ernst & Young numbers.
If you don't, and halve that number, and add the holding in Maytas Infrastructure, the family now had Rs 5,000 crore through the Maytas firms, more than twice what it ever had in Satyam.
Up to this point, you would call it a supremely successful heist -- though it does not make much business sense to create Rs 5,000 crore value by stealing and investing Rs 5,000 crore or Rs 50 billion!
The problem is that if Rs 1,000 crore or Rs 10 billion had been stolen, it might have got hidden in a big balance sheet and been washed out at some point. But Rs 5,000 crore was in another league.
Admittedly, since the company's auditors were willing to accept forged bank documents as proof of cash, the company could have kept going -- after all, it was earning a surplus every quarter.
Perhaps, Mr Raju did not reckon with the stock market crash, which made his lenders start offloading the shares he had given as security -- and the Raju holding in Satyam began to drop alarmingly.
Mr Raju told the board that his promoter shareholding had dropped to such a low level that Satyam had become a takeover target. More worrisome for him, a takeover would have revealed that cash was missing. But his poison-pill, the Maytas takeover plan, could not have gone through.
The transaction was to have been financed by using the cash with Satyam, cash which wasn't there. Since Mr Raju knew that, what was he trying to pull off? It remains a mystery, because the lack of cash would have become known in December itself if the shareholders had not forced a rollback and delayed the discovery that there was no cash.
In an odd move, some weeks before the takeover plan was presented to the Satyam board, Mr Raju began having seemingly purposeless meetings with Delhi editors. Was he hoping to build goodwill? It would seem that long before the takeover plan was hatched, Mr Raju had realised that his goose was cooked.
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