Satyam tries to reassure customers, investors

BANGALORE – Troubled Satyam Computer Servicesis attempting to reassure customers and investors that it can keep the company afloat, but did not discuss specific measures.

The Indian outsourcer is working on various options to improve liquidity on its balance sheet, which is right now not encouraging, Ram Mynampati, interim CEO at Satyam, told reporters at a press conference Jan. 8. He did not offer plan details.

On Sunday, the Indian government dissolved the board of directors and appointed three of its own people to the board. Local police in Hyderabad also arrested on Friday B. Ramalinga Raju, formerly chairman of Satyam, and his brother B Rama Raju who was the managing director. The company’s chief financial officer, Vadlamani Srinivas was arrested Saturday. Raju resigned last week after admitting to inflating the company’s profits for several years.

Company executives had reached out to customers, and spoke to some of them individually, to assure them of the continuity of Satyam’s services, Mynampati said last week.

“The future of Satyam as an independent entity is in doubt now”, said Sudin Apte, senior analyst at Forrester Research. “With fraud running high and no clear visibility into availability of working capital and cash on hand, its clients and employees will have serious challenges,” he added.

[Satyam has a Canadian presence, including a software development centre in Mississauga, Ont., which it opened in 2004. The opening was attended by representatives of some of its 40 Canadian customers at the time, according to a press release, including exectives from Scotiabank and TD Bank]

Clients will start analyzing their dependence on Satyam’s resources, particularly for mission-critical applications such as running SAP applications, and decide on moving them in-house or to another service provider, Apte said. Customers typically have more than one offshore supplier, reducing their dependence on any single supplier in the short term, he added. Customers may also offer jobs to key Satyam staff working on their projects, either to work in-house or to transfer to another supplier, Apte said.

The new board consists of Deepak S. Parekh, the executive chairman of Housing Development Finance Corporation (HDFC); C. Achuthan, director at the country’s National Stock Exchange, and former member of the Securities and Exchange Board of India; and Kiran Karnik, former president of National Association of Software and Service Companies (Nasscom), a trade association that promotes India’s outsourcing industry.

Earlier on Thursday, the company tried to convey a measure of stability by issuing a statement that said that 10 of Satyam’s most senior executives, and 40 regional managers, had pledged to stay with the company.

Although no legal action has been taken in India against Raju or Satyam, two law firms have filed class-action suits in the U.S. on behalf of those who purchased Satyam’s American Depository Receipts.

India’s securities regulator, the Securities and Exchange Board of India (SEBI), has ordered an investigation into the Satyam episode. SEBI investigators visited Satyam’s office on Thursday, Mynampati said.

Customer decisions will largely depend on how quickly Satyam moves to clear the mess at the company, said Apte. Some of Satyam’s services are important to customers, and if the company is acquired or an investor steps in and funds the company within this month, customers are likely to stay with Satyam, he added.

[With a file added by Howard Solomon, Network World Canada]

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