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04 March 2024

Fraud-hit Satyam searching for emergency funding


By Reuters

The new board of embattled Indian outsourcer Satyam Computer Services is working to secure emergency funding for the firm and will consider appointing a banker for the rescue effort, a board member said.

The banker would help the board consider all options in a bid to salvage the company, said Deepak Parekh, who was drafted in by the government along with others after it dissolved the fraud-hit firm's existing board earlier this month.

"We have pledged some receivables to get funds. The board is meeting tomorrow and will decide on the banker," Parekh said on Wednesday. "We are working on securing funds."

Parekh, a respected banker, has said Satyam had INR17 billion (Dh1.3bn) in receivables, and the new board has confirmed it is in talks with banks about funding and is doing all it can to ensure employees are paid.

Satyam said on Tuesday it has been approached by a number of potential buyers, though analysts say a deal would be difficult until the full extent of the fraud is known. Lawsuits arising from the scandal could also deter any would-be suitors.

Satyam and the government have both downplayed media speculation of a state bailout.

But it is not clear if Satyam's receivables would come in on time for the company to pay its most pressing bills. Parekh said the firm was ready to pledge some of its expected receivables as collateral in order to secure a loan or other funding.

Satyam, India's number-four software services exporter, was plunged into crisis after founder Ramalinga Raju resigned as chairman earlier this month, revealing profits had been falsified for years and $1 billion (Dh3.67bn) of cash on the books did not exist.

The firm's new auditors are scrambling to determine how much money it really has, while executives are trying to assure nervous clients that the company is still a going concern.

US-based insurer State Farm Insurance has terminated its contract with the firm and some others are believed to be reviewing their service contracts. Satyam's clients include such giants as Nestle and General Electric

India's largest-ever corporate scandal has cast a shadow over the country's outsourcing sector, which was already struggling with slowing growth due to global financial turmoil.

The United States alone accounts for more than half of India's $52 billion IT and back-office services revenue, and is facing its worst economic crisis since the Great Depression.

India's number-three outsourcer Wipro Ltd met analysts expectations on Wednesday by reporting an 8.7 per cent rise in quarterly profit, but gave a downbeat outlook as its Western clients clamoured for lower prices, sending its shares down more than 3 per cent.

"We are living in tough times; the macro-economic challenges are significant and impacting businesses across the segment," Chairman Azim Premji said in a statement. Wipro, which counts ailing Citigroup among its clients, said net profit rose to INR8.98 billion in October-December from INR8.26 billion a year ago.

Suresh Vaswani, Wipro's co-chief executive officer, said the company was not hunting for Satyam's clients nor would there be any pressure on Wipro's business because of the scandal.

"If customers are talking to us as a matter of routine, as a matter of consolidation... then we are having a dialogue."

Raju and his brother, who was Satyam's former managing director, and the company's former chief financial officer were moved to police custody for questioning in Hyderabad, the firm's home city, on Sunday for four days after spending a week in jail.

Satyam's shares have lost more than 80 per cent of their value in the past month, but were up 5 per cent on Wednesday on hopes the firm would be able to avoid a near-term cash crisis.

Parekh said on Wednesday evidence of fraud had appeared during investigations.

"Some of the papers we have seen, it is obvious, you can make out documents were forged," he said.