confession of a great con man

'It was like riding a tiger, not knowing how to get off without being eaten'

To the board of directors Satyam Computer Services Ltd.


FROM B RAMALINGA RAJU CHAIRMAN I SATYAM COMPUTER SERVICES LTD. JANUARY], 2009



Dear board members,
It is with deep regret, and tremendous burden that I am _ . carrying on my conscience, 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 & bank balances of Rs 50.40 billion ($1.04 billion) (as against Rs 53.61 billion reflected).
b. An accrued interest of Rs 3.76 billion which is non-existent.
c. An understated liability of Rs 12.30 billion on account of funds arranged by me.
d. An overstated debtors position of Rs 4.90 billion (as against Rs 26.51 billion reflected in the books) 2. For the September quarter (Q2) we reported a revenue of Rs 27 billion and an operating margin of Rs 6.49 billion (24% of revenues) as against the actual revenues of Rs 21.12 billion and an actual operating margin of Rs 610 million (3 % of revenues). This has resulted in artificial cash arid bank balances going up by Rs 5.88 billion in Q2 alone. .
The gap in the balance sheet has arisen purely on account of inflated



profits over a period of last several years (limited only to Sat yam standalone, books of subsidiaries reflecting true performance). What started as a marginal gap between actual operating profit and the one reflected in the books of accounts continued to grow over the years. It has attained unmanageable proportions as the size of company operations grew significantly (annualized revenue run rate of Rs 112.76 billion in the September quarter, 2008, and official reserves of Rs 83.92 billion). The differential in the real profits and the one reflected in the books was further accentuated by the fact that the company had to carry additional resources and assets to justify higher level of operations-thereby significantly increasing the costs.
Every attempt made to eliminate the gap failed. As the promoters held a small percentage of equity, the concern was that poor performance would result in a takeover, thereby exposing the gap. It was like riding a tiger, not knowing how to get off without being eaten.
The aborted Maytas acquisition deal was the last attempt to fill the fictitious assets with real ones.
Maytas' investors were convinced that this is a good divestment opportunity. and a strategic fit. Once Sat yam's problem was solved, it was hoped that Maytas' payments can be delayed. But that was not to be.
What followed in the last several days is common knowledge. I would

like the board to know:
1. That neither myself, nor the managing director (MD) (including our spouses) sold any shares in the last eight years - excepting for a small proportion declared and sold for philanthropic purposes.
2. That in the last two years a net amount of Rs 12.30 billion was arranged to Sat yam (not reflected in the books of Sat yam) to keep the operations going by resorting to pledging all the promoter shares and raising funds from known sourc.es by giving all kinds of assurances.
(Statement enclosed, only to the members of the board). Significant dividend payments, acquisitions, capital expenditure to provide for growth did not help matters. Every attempt was made to keep the wheel moving and to ensure prompt.
payment of salaries to the associates. The last straw was the selling of most of the pledged share by the lenders on account of margin triggers.
3. That neither me, nor the MD took even one rupee/dollar from the company and have not benefited in financial terms on account of the inflated results.
4. None of the board members, past or present, had any knowledge of the situation in which the company is placed. Even business leaders and senior executives in the company, such as, Ram Mynampati, Subu D, T R Anand, Keshab Panda, Virender Agarwal, A S Murthy, Hari T, S V Krishnan, Vijay Prasad,

Manish Mehta, Murali V. Sriram Papani, Kiran Kavale, Joe Lagiola, Ravindra Penumetsa; Jayaraman and Prabhakar Gupta are unaware of the real situation as against the books of accounts. None of my or MD's immediate or extended family has any idea about these issues.
Having put these facts before you, I leave it to the wisdom of the board to take the matters forward.
However, I am also taking the liberty to recommend the following steps:
1. A task force has been formed in the last few days to address the situation arising out of the failed Maytas acquisition attempt. This consists of some of the most accomplished leaders of Sat yam:, Subu D, T R Anand, Keshab Panda and Virender Agarwal, representing business functions, and A S Murthy, Hari T and Murali V representing support functions. I suggest that Ram Mynampati be made the chairman of this task force to immediately address some of the operational matters on hand. Ram can also act as an interim CEO reporting to the board.
2 Merrill Lynch can be entrusted with the task of quickly exploring some merger opportunities.
3 You may have a restatement of accounts' prepared by the auditors in light of the facts I have placed before you.
I have promoted and have been associated with Sat yam for well over 20 years now. I have seen it grow from few people to 53,000 people,

with 185 Fortune 500 companies as customers and operations in 66 countries. Sat yam has established an excellent leadership and competency base at all levels. I sincerely apologise to all· Satyamites and stakeholders, who have made Sat yam a special organisation, for the current situation. I am confident they will stand by the company in this hour of crisis.
In light of the above, I fervently appeal to the board to hold together to take some important steps. T R Prasad is well placed to mobilise support from the 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 crucial hour, I am marking copies of this statement to them as well.
Under the circumstances, I am tendering my resignation as the chairman of Sat yam and shall continue in this position only till such time the current board is expanded. My continuance is just to ensure enhancement of the board over the next several days or as early as possible.
I am now prepared to subject myself to the laws of the land and face consequences thereoL

- B Ramalinga Raju

Copies marked to: 1. Chairman, Sebi 2. Stock exchanges

- source: Times of India

Politics-property combo may have trapped Raju 8 Jan 2009, 1530 hrs IST, Rajesh Unnikrishnan & Boby Kurian, ET Bureau

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MUMBAI/BANGALORE: An audacious real estate play is seen as the backdrop for the 54-year-old B Ramalinga Raju’s sudden exit from Satyam Computer Services, India’s fourth-largest IT company. The Raju family, said real estate industry sources, might figure among India’s top 10 landlords as it had embarked on a massive land-buying strategy to cash in on the real estate boom in recent years. While the family holds over 6,500 acres through Maytas Properties, the individual members in their personal capacity have significant holdings of agricultural land across south and western India, industry officials said. Industry and banking sources said the Rajus leveraged their ownership of Satyam, both in terms of shareholding and management control, to fuel other businesses. In fact, one banking source surmised that a key reason for cooking the books could have been to leverage the bull run in the Satyam stock before the market meltdown in the second half of 2008. The promoters may have needed cash for land acquisitions, particularly around their infrastructure projects that were won on the back of ‘goodwill’, according to these sources. So how did the Rajus land up with a severe liquidity crunch? One of the theories doing the rounds suggests they were trapped by a murky cocktail of political developments and a real estate crash. In the recent past, Maytas Properties and Maytas Infrastructure had won a number of prestigious projects. These include the Hyderabad Metro Rail project, Machilipatnam port project and airport projects in Andhra Pradesh and Karnataka. In return, prime land near some of these projects had to be ‘offered’ to the supportive establishment. Several real estate sources claimed there were some instances of Maytas being awarded road projects even without proper bidding. However, ET could not confirm all this independently at the time of going to press. With the real estate story turning sour, political circles were said to have demanded funds from the family instead of land. “Upcoming elections may have also forced members of the establishment to change their preference from land to money which put them in a fix,” said a Hyderabad-based developer. Also Read → Satyam faces class action lawsuit in US → The truth behind Raju's confessions → Satyam scam triggers biggest D&O claim → Clueless Satyam staff left shamefaced Observers said Raju’s sudden admission of fraud had compelling reasons, and was probably done under external pressure to thwart bigger revelations. In this context, it must be mentioned that Delhi Metro managing director E Sreedharan had called Hyderabad Metro Rail project a “future political scam”. He had objected to the way the government allowed the private consortium to develop land commercially. Some other rumours floating in Hyderabad claim Satyam’s promoters raised huge funds from tobacco traders in Rayalseema district by pledging Satyam shares. The promoters may have assumed that they would be able to raise funds to recover the pledged shares through an IPO of Maytas Properties. But the downturn in the real estate market derailed Maytas’ IPO plans leading to the promoters being unable to meet margin calls on Satyam shares.

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