Fraud-hit Satyam seeks emergency funding

An employee (2nd R) and security guards walk near the main entrance of the Satyam Computer Services head office in the southern Indian city of Hyderabad January 12, 2009.

MUMBAI (Reuters) - The new board of fraud-hit Indian outsourcer Satyam Computer Services (SATY.BO) is working to secure emergency funding for the company and will consider appointing a bank to aid the rescue effort.

A bank would help the board consider all options in a bid to salvage the company, board member Deepak Parekh said. He and others were drafted in by the government after it dissolved Satyam's previous 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."

JPMorgan (JPM.N) and Goldman Sachs (GS.N) are among the banks shortlisted to advise the new board, three banking sources said. Spokesmen at the Indian offices of JPMorgan and Goldman could not be immediately reached for comment.

Satyam, India's No. 4 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 of cash on the books did not exist.

In a move designed to contain the fallout from the scandal and improve corporate transparency, India's capital markets regulator said it would make it mandatory for founders of companies to disclose their pledged shareholdings at December 31.

Parekh, himself a banker, has said the Hyderabad-based company had 17 billion rupees ($350 million) in receivables. The new board has said it is in talks with banks about funding and is doing all it can to ensure employees are paid.

Satyam 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.

"There are many corporate houses, they are interested in this," Corporate Affairs Minister Prem Chand Gupta said when asked if companies had expressed interest in buying Satyam.

"The government has not taken any view on this ... it is for the board to take that call. But as far as the government is concerned, there is no such thinking, no such move," he said.

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

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 company was ready to pledge some of its expected receivables as collateral in order to secure a loan or other funding.

Satyam'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.

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 on Sunday for four days, having already spent a week in jail.

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.

Raju and other full-time directors of the company, including the former chief financial officer and company secretary have been directed by India's Company Law Board to give details of their bank accounts and other assets by February 20, Gupta said.

Also, they cannot sell or mortgage any of their shares, securities and fixed deposits without the permission of the quasi-judiciary body.

CANCELED CONTRACT

U.S.-based insurer State Farm Insurance has terminated its contract with Satyam and some others are believed to be reviewing their service contracts.

Satyam's clients include Nestle (NESN.VX) and General Electric (GE.N).

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

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

India's No.3 outsourcer Wipro Ltd (WIPR.BO) met analysts expectations on Wednesday with an 8.7 percent rise in quarterly profit, but gave a downbeat outlook as its Western clients clamored for lower prices, sending its shares down more than 3 percent.

Wipro, which counts ailing Citigroup (C.N) among its clients, said net profit rose to 8.98 billion rupees in October-December, from 8.26 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."

Satyam's shares have fallen more than 80 percent in the last month, but closed up more than 3 percent on Wednesday on hopes it would be able to avoid a near-term cash crisis.

(Additional reporting by Rajesh Kumar Singh and Devidutta Tripathy in NEW DELHI; Writing by Alistair Scrutton, Editing by Mark Williams and Andrew Macdonald)