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India’s Enron… January 7, 2009

Posted by neoavatara in Economy, World Politics.
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Ramalinga Raju, CEO Satyam; India's Ken Lay?

Ramalinga Raju, CEO Satyam; India's Ken Lay?

http://money.cnn.com/2009/01/07/news/international/india_software/index.htm

http://www.cnbc.com/id/28533912

Satyam Computer Services of India, one of the largest IT companies in the world, today announced that their balance sheets have largely been falsified, and that the company’s worth is questionable.

The chairman of India’s Satyam Computer Services Ltd., Ramalinga Raju, quit Wednesday after admitting the company’s profits had been doctored for several years, shaking faith in the country’s corporate giants as shares of the software services provider plunged nearly 80 percent.   Raju’s brother, also a senior executive, resigned as well.

Satyam serves as the back office for some of the largest banks, manufacturers, health care and media companies in the world, handling everything from computer systems to customer service. Clients have included Citibank, General Electric, General Motors, Nestlé and the United States government. In some cases, Satyam is even responsible for clients’ finances and accounting.

Satyam, which ironically means ‘truth’ in Sanskrit, now joins the lists of Enron and others who have basically made up their fiscal accounting.  This puts into serious question India’s regulatory system.  Additionally, since the company was listed on the NYSE, and since 2002 has been audited yearly by PricewaterhouseCoopers, there is again questioning of whether any of these auditing agencies can be trusted.

Overall, this will weaken faith in India’s IT corporations.  Infosys, Wipro, and others will now have to go to greater lengths to prove their books are sound.  However, collateral damage from Satyam may benefit these companies as well, as many large US corporations are now actively looking to dump their Satyam contracts.

Satyam is headquartered in Hyderabad, India, and employs approximately 52, 000 people in 66 countries.  It is the 4th largest IT company in India.

Shares of the stock dropped 80% on the SENSEX.  The larger Indian market dropped approximately 7 % on the news.

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