BANGALORE In a stunning 5-page letter detailing years of financial deception at the firm he founded, Satyam Computer Services Chairman B. Ramalinga Raju brought an illustrious corporate career to an undignified end.
A poster boy of Indian business after setting Satyam on a path of high growth, hiring thousands of staff and bagging lucrative outsourcing contracts from overseas clients, Raju admitted on Wednesday that profits at the company had been falsely inflated for years.
India's biggest corporate scandal in memory hammered Satyam's shares, which had already been under pressure since last month. The stock fell more than 80 percent on Wednesday, leaving the company worth around $500 million, against nearer $7 billion just six months ago.
Life for the 54-year-old Satyam chief became tough last month after a botched attempt to buy two firms partly owned by the company's founders, which he said on Wednesday was a final attempt to resolve the problem of the fictitious assets.
"It was like riding a tiger, not knowing how to get off without being eaten," he said in his resignation letter.
His problems were compounded last month when the World Bank barred Satyam from business, citing "improper benefits" given to Bank officials. Satyam has demanded the World Bank retract those comments.
But nothing prepared investors for Raju's stunning revelation of years of inflated profits based on non-existent assets. He acknowledged no other board member had been aware of the financial irregularities, and insisted he had not profited from the company's inflated results. .
Softly spoken Raju, born into a family of farmers, said he was prepared to face up to the legal consequences of a scandal that analysts swiftly dubbed "India's Enron."
"This development was the last straw to break the camel's back," said Sudin Apte, country head of Forrester. "I believe possibly a third of Satyam's clients will exit in the next 2-3 months."
Indian market regulators and government officials were quick to condemn, and banker Merrill Lynch terminated its engagement with Satyam, which counts General Electric and Nestle among its clients.
A management graduate from Ohio University, Raju moved away from agriculture to start a textile unit in 1977 before later moving into real estate.
In 1987, he founded Satyam Computer along with his brother B. Rama Raju and brother-in-law D.V.S. Raju, taking the company public four years later. That year, he won his first offshore contract from U.S. tractor maker John Deere & Co.
Raju steered the company in the next decade, snapping up joint ventures with GE and U.S. defense and auto parts firm TRW Inc, which was acquired in 2002 by Northrop Grumman.
Raju was among the first to spot the outsourcing opportunities of the turn-of-the-millennium Y2K computer problem, which saw the coming-of-age of Indian outsourcers, including Infosys Technologies and Wipro.
He then followed up with six acquisitions over the next few years, taking the firm's headcount to more than 53,000 working in software facilities in India and overseas.
With growth slowing sharply for Indian outsourcers due to the global economic turmoil, Satyam's new management will have an additional challenge -- how to boost sagging morale among staff, customers and shareholders.
And Raju, the Ernst & Young Entrepreneur of the Year in 2007, will be left having to watch from the sidelines rather than calling the shots at Satyam, which in Sanskrit means 'truth'.
(Editing by John Mair and Ian Geoghegan)