HYDERABAD, India India's Satyam Computer faces a crisis of "unimaginable proportions," its interim chief executive said a day after the chairman revealed profits had been falsely inflated for years.
Chairman Ramalinga Raju resigned on Wednesday in India's biggest corporate scandal in memory, after saying that about $1 billion, or 94 percent of the cash and bank balances on the company's books at end-September did not exist. The company's shares plunged nearly 80 percent.
The scandal, which some analysts dubbed "India's Enron" after the collapsed U.S. energy firm, has cast a cloud over foreign investment in Asia's third-largest economy and over its once-booming outsourcing sector.
It may also increase investors' nervousness about weak corporate governance and oversight in emerging markets, which are reeling from the global financial crisis.
Interim CEO Ram Mynampati said on Thursday that Satyam, India's fourth-largest software company, had contacted its top 100 customers, who account for almost 80 percent of revenue, and had received expressions of support.
Satyam specializes in business software and back-office services for clients such as General Electric and Nestle.
"Our only aim at this time is to ensure that the business continues," Mynampati said at a media conference on Thursday.
Mynampati said the liquidity situation was "not very encouraging now," but added Satyam had healthy receivables and would be able to deal with obligations this month.
There is little chance of Satyam being bought by another company given the scandal and losses from potential law suits, ABN Amro analysts said in a report, calling its cash position "precarious."
A team from the Securities and Exchange Board of India arrived at the company's headquarters in Hyderabad in southern India on Thursday to search for clues on how the fraud could have been hidden for so long.
Satyam was assessing Raju's revelations of overstated revenues and fictitious assets, and many actions against him were possible, Mynampati said, but the company had not yet lodged a complaint with authorities.
"The government will take all necessary action to ensure these types of scandals do not take place again. Whatever steps could be taken will be taken," Corporate Affairs Minister Prem Chand Gupta told Reuters late on Wednesday.
Satyam employees shuffled into its Hyderabad office as usual, refusing to speak to reporters outside the gates.
The chief financial officer had not reported to work, citing personal reasons, but was assisting with required information, Mynampati said. He added the CFO had submitted his resignation on Thursday, but it had not yet been accepted by the board, which will meet on January 10.
The government has asked the registrar of companies in Hyderabad to file a report, while the stock market regulator has ordered a probe into trading in the company's shares.
Stocks in India did not trade on Thursday due to a holiday. Bombay's benchmark stock index tumbled more than 7 percent on Wednesday and the Indian rupee fell after the Satyam bombshell, which some analysts dubbed "India's Enron" after the collapsed U.S. energy firm.
The New York Stock Exchange halted trading in Satyam's shares indefinitely.
Some investors in Satyam's American Depositary Receipts have already filed class action suits against the firm, lawyers said.
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RIDING A TIGER
Since opening its economy to the world in the early 1990s, India has seen a proliferation of new companies. Strong economic growth has attracted foreign investors, and analysts say existing laws are inadequate to deal with the surge in corporate activity.
"The type of incident that happened in Satyam does not mean our entire corporate sector is like that. We need to see this type of incident does not happen again," Gupta said.
Raju, who founded the company in 1987, said no other board member was aware of the irregularities at Satyam, which in Sanskrit means "truth."
Mynampati said he was shocked by the disclosures, saying he and other board members relied on audited results. Auditor PricewaterhouseCoopers said its audit had been carried out in accordance with standards and it would cooperate with regulators.
Mynampati said the company would be looking at hiring a new investment bank, as the need to explore strategic alternatives had become more imperative. Merrill Lynch, which Satyam appointed as an advisor last month, terminated the relationship on Wednesday, adding it had found material accounting irregularities.