Raju ban gaya Gentleman!!

The winters are always interesting. Right since the childhood days when we used to have 3 month long winter vacation, with absolutely nothing to do but lazily crack peanuts under warm sun, winters hold special charm for me. This year tough, the winters were looking dreary with non stop talk of recession, layoffs and terrorism, the same stories recounted ad-nauseam.

Then came the sequel of “Raju ban gaya Gentleman”. Gosh! We have so much to talk now. The sequel is better. It has two Rajus now. B Rama Raju and B Ramalinga Raju. The common thing in them..the initials B. R. which say it all, Bloody Rascals.

And what a climax. The best resignation letter I have ever seen. Bollywood must learn how to write dialogues from him.

Its starts with “It is with deep regret and tremendous burden that I am carrying on my conscience…”. Conscience?? Great. Even crooks have conscience. I didn’t know that.
Then he goes on writing the gory details of his evil deeds in a tones that is becoming of serial killers who enjoys shocking the investigators by giving minutest details of his ghastly crime. The criminals relive the experience and they enjoy it.

In the first part, he makes every attempt to shock you. Look at the use of brackets!!
“For the September quarter(Q2) we reported a revenue of Rs 2,700 crore and an operating margin of Rs 649 crore(24 per cent of revenue) as against the actual revenues of Rs 2,112 crore and an actual operating margin of Rs 61 crore (3 per cent of revenues). This has resulted in artificial cash and bank balances going up by Rs 588 crore in Q2 alone.”

Mr Raju, We know how to calculate margins if the figures are correct. You don’t have to do that favor on us.

Then he seems to paint a picture which will make you feel sorry for him.

Every attempt made to eliminate the gap failed. As the promoters held a small percentage of equity, the concern was that poor performance would result in the takeover, thereby exposing the gap. It was like riding a tiger, not knowing how to get off without being eaten.
The aborted Maytas acquisition deal was the last attempt to fill the fictitious assets with real ones. Maytas' investors were convinced that this is a good divestment opportunity and a strategic fit.
One Satyam's problem was solved, it was hoped that Maytas' payments can be delayed. But that was not to be.

…………….
So sad...really. God should have been kinder and given him rewards for his frantic efforts.
Then he goes on to present a list of facts which should be titled “Lies, damn lies!”

1. No, we didn’t sell any shares.
2. We tried to keep operations afloat by putting our own money.
3. We didn’t take even one rupee from all this.
4. None of the board members, top management or family members knew it.

Here he acts as a hero. A fallen one but hero none the less. He takes all the blame, he claims all the glory of hiding a stinking pile of shit in the board room from everyone. He pronounces his senior management leaders ‘Not Guilty’, he names his successor, he charts the course and then like a true leader he offers his head.

“I am now prepared to subject myself to the laws of the land and face the consequences thereof"

Let me borrow the phrase from the Queen of Hearts’ of ‘Alice in the wonderland’ and shout
‘Off with his head!'

The 5 billion dollars of market capitalization that has evaporated right under our eyes will never come back. Fifty thousand jobs may go and never come back but yes, we can make it an example of this case by giving most severe punishment to everyone involved. Enron’s Kenneth Lay was given 20-30 years in prison. We need something similar to be done to ensure that people have enough negative incentive to think twice before doing such a thing. We have to revoke the license of PWC. What good can come out of posting security guards at the gate who are either blind or turn a blind eye?

As for the independent directors, I’ll quote Upton Sinclair “Its difficult to get a man to understand something when his salary depends on his not understanding it”

There is a learning for all the investors. When shit hits the ceiling fan, duck for cover. Get out of a tainted company at the first sign of trouble. Value investing is not about finding gems in gutter.
I’m most disappointed with the role of financial institutions in this whole affair. How is it that a person holding just 5% stake became the nemesis for a company. Why is it that the institutional investors who together hold majority stake in company have no power to stop such a thing from happening? A bigger matter of concern is the fact that after the aborted attempt at Maytas acquisition, many institutional investors were still OK with Raju continuing in the board. As an ET Intelligence report suggest atleast 5 mutual funds increased their stake in Satyam by more than 50% of their existing holding. What were they doing by investing the public money after they had seen what the management is capable of.

Institution	Shares (Nov-08)	Shares (Dec-08)	Increase
Tempelton	3,650,084	5,144,613	40.9%
HDFC MF	5,519,846	10,595,343	91.9%
HSBC	630,000	1,001,000	58.9%
Sundaram paribas	477,512	5,814,907	1117.8%
Tata MF	35,014	298,864	753.6%
Taurus MF	45,859	75,236	64.1%

The Enron episode changed many things is US. We have to act now. It is a fact that crooks always find new ways to cheat and people find new ways to lose money but atleast we can avoid being true to Mulla Nasiruddin’s definition of a man….’A man is a donkey that falls twice in the same ditch’

Indian IT sector has had too many shady companies to keep our faith intact. Out of the most traded stocks of 1999-2000, a third have already gone bankrupt, another half have become junk stocks due to scams (Pentafour, DSQ, Himachal Futuristic, Silverline, Hinduja TMT) and only few big names have emerged. Satyam, till last month was counted among big names and now joins the junk stock club.

The Satyam story also brings into limelight the issue of loads of cash the IT companies are sitting on. Such a large pile is an open invitation to fraud or misplaced corporate adventurism in acquisitions that destroy value.

What has happened so far is just the beginning. We can only pray that this unfortunate episode becomes a triggered for much needed laws to enforce good corporate governance practices.

References:

Raju's resignation letter

http://business.timesonline.co.uk/tol/business/industry_sectors/technology/article5467583.ece