The Hindu : Business : ‘Satyam is India’s Enron’

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‘Satyam is India’s Enron’

Ashok Dasgupta

The similarity between the two scams is significant

— PHOTO: SATISH H.

LOW MORALE: Satyam Computer Services head office in Hyderabad. Ramalinga Raju, CEO of the company, resigned on Wednesday amid a scandal that sent the company’s stocks into a free fall.

NEW DELHI: As Satyam’s financial bungling came to light with its erstwhile Chairman Ramalinga Raju owning up to wrong doings worth thousands of crores in the balance sheet, analysts described the scam as “India’s own Enron scandal”.

In his letter to the Satyam board of directors with copies marked to the SEBI Chairman and stock exchange boards, Mr. Raju admitted that the company’s financials were being inflated over the years and such irregularities by way of non-existing funds had added up to about Rs. 8,000 crore. Having cleared “his conscience” following the failed attempt to transfer the “funds” to his family-promoted company Maytas, he said he was ready for the laws of the land and face the consequences.

Commenting on the alarming scam in India’s corporate history, Ashika Stock Brokers’ Research Head Paras Bothra said: “We have witnessed everything bad, but not as bad a scam as this. It has become India’s own Enron till date.” Also dubbing the scandal as India’s Enron, analysts of Angel Broking said: “Raju has relieved the burden on his conscience by bringing to light one of the biggest-ever frauds in Indian corporate history.”

The similarity between the two scams is significant as, before its liquidation in late 2001, Enron was regarded as one of the world’s leading energy companies with over 20,000 employees and a revenue claim of over $100 billion in 2000. Also, for six years in a row, Enron was “America’s most innovative company”. It was only by the end of 2001 that it came to light that the company’s “financial condition” was sustained mainly through institutionalised, systematic and creatively planned accounting fraud.

Satyam has nearly 53,000 employees and is the country’s fourth biggest IT firm. It has also won various innovation accolades and awards for its corporate governance. Analysts indicated that the size of the financial wrong doing could be much higher, considering that the figure of about Rs. 8,000 crore was disclosed by the company chairman himself.

“May be, it is just the beginning, something more could just crop up as investigations unfold. Investor confidence has been shattered and a fraud of such magnitude has shaken the confidence of institutional investors, who would have relied on the books of the company,” Mr. Bothra said.

Grant Thornton’s Harish H.V. said it was unlikely that the management was unaware of the whole situation and that the role of independent directors was questionable. Calling for swift and expeditious action against the loss of confidence, he noted that the regulators “need to act swiftly and ensure that there is no knee-jerk reaction” keeping in view the image of Indian companies abroad.

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