Satyam eyes funding as L&T says no rescue offered

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.

HYDERABAD, India (Reuters) - Indian engineering and construction firm Larsen & Toubro Ltd denied it would present a rescue plan to Satyam Computer Services Ltd, as the fraud-hit company sought emergency funding.

Larsen was a front-runner to buy the Hyderabad-based outsourcer, the Business Standard said, adding Satyam's institutional investors such as Life Insurance Corp and ICICI Prudential Life Insurance backed a bid.

A spokesman for L&T on Thursday denied media reports that the company would present a rescue plan to Satyam's board. "This is totally incorrect. We are not making any presentation. L&T is refuting all these media reports," D. Morada told Reuters.

Satyam, India's fourth-largest software services exporter, has been battling for survival since 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.

Larsen, which holds about 4 percent in Satyam, had said it may look for an alliance with the software services exporter once the company's accounts had been fully investigated.

The Economic Times, citing investment banking and government sources, said Larsen would put a price on its bid once KPMG and Deloitte, Satyam's new auditors, released restated results.

The Economic Times said telecoms software firm Tech Mahindra Ltd, part of Mahindra & Mahindra Ltd, was also a strong contender to take control of Satyam.

India's federal corporate affairs minister has said several companies were interested in acquiring Satyam.

Separately, Maytas Infra Ltd, a building firm founded by Raju's family, said the Serious Fraud Investigation Office was investigating its accounts, delaying its quarterly results beyond a January 31 deadline.

On Thursday, a Hyderbad court extended the police custody for questioning of Raju and the company's former CFO until Friday afternoon, while Rama Raju, Raju's brother and Satyam's ex-managing director, was sent back to jail.

During the hearing on extending police custody, public prosecutor K. Ajay Kumar told the court that Satyam had only 40,000 employees, not the 53,000 it claimed, and the non-existent employees were used to transfer funds from the company.

Kumar said investigators had found fixed-deposit statements and other bank documents were forged, and needed time to find if money had been used for land purchases.

Defence lawyer Bharat Kumar told the court the prosecutor's claims were false, and argued against the extension of police custody.

BOARD TALKS

Satyam's new, six-member, government-appointed board began a two-day meeting on Thursday to look at how to secure emergency funding to tide the company over following the country's biggest corporate scandal.

The board is also expected to consider appointing an investment banker to aid the rescue effort, as well as pick a chief executive and a chief financial officer.

JPMorgan and Goldman Sachs are among banks shortlisted to advise Satyam, banking sources said, and could be asked to find a strategic investor.

"The top priority at this point is to ensure that customers are not impacted because of this scandal," said Avinash Vashistha, chief executive at consultant Tholons Inc. "Then, you have to assure employees they will be paid and the company will not collapse tomorrow."

The Hindustan Times quoted board member Kiran Karnik as saying Satyam had received notice from two large customers that they were terminating their contracts.

"Two large customers have given us notice on leaving, but others are there and many of them have indicated they would like to renew and expand," Karnik told TV, the newspaper said, without naming the clients.

Satyam said on Monday that U.S.-based State Farm Insurance had canceled its contract with the company. Other major clients include Nestle and General Electric.

(Additional reporting by Janaki Krishnan and Prashant Mehra in MUMBAI; Editing by John Mair and Erica Billingham)