A dateline of the story.
29th July : Maytas Infrastructure bags the order for building Hyderabad Metro project on a Build Operate Transfer (BOT) basis for Rs. 120 billion with a guarantee to pay the Andhra Pradesh government a sum of Rs. 300 billion over a period of 34 years. Maytas Infra gets 296 acres of prime land in Hyderabad as part of the deal. The price of its share rises to Rs. 494
21st September : E. Sreedharan, MD of Delhi Metro & a consultant for the project writes to the finance ministry hinting of a big scam. Sreedharan says in the letter, "Here, I would like to caution that the example of Hyderabad Metro is quite misleading as the negative viability gap funding has resulted solely on account of 296 acres of prime land being made available to the BOT operator for commercial exploitation. This is like selling family silver. Apart from the fact that this might lead to a big political scandal sometime later, it is apparent that the BOT operator has a hidden agenda which appears to be to extend the metro network to a large tract of his private land holdings so as to reap a windfall profit of four to five times the land price,.....”
16th December: Satyam Computers buys 100% stake in Maytas Infra in a move towards unrelated diversification from IT to Infrastructure.
18th December: Satyam cancels the Maytas deal on account of shareholders' opposition who smelt 'nepotism' in the deal as the promoters of both the companies belong to one single family, that of the Rajus. Maytas Infra share price falls to Rs.160.
7th January : Satyam Chairman, Ramalingam Raju resigns after confessing his personal involvement in a fraud amounting to Rs. 70 billion. Satyam scrips drops to Rs.40 from Rs.190 in a single day.
Additional Information :
- Satyam is the fourth largest IT company in India with revenues totalling Rs. 110 billion & employing 50000 people.
- Satyam is a word of Sanskrit origin & literally means "Truth."
- Maytas is Satyam spelled backwards.
- Satyam & Maytas both are publicly listed companies from Hyderabad and their promoters belong to one single family,that of the Rajus.
- Price Waterhouse Coopers (PWC) are the auditors of Satyam.
- The board of directors of Satyam had several luminaries including one professor of 'corporate governance' from Harvard,K. Palepu. A silicon valley entrepreneur ,Vinod Dham. And an Indian academic & Dean of 'Indian School of Business, M.R.Rao
Moral of the story : The Indian system of corporate governance relies on the promoter's ability to keep everybody happy. The four pillars (Chaar Minar) of corporate governance chiefly the Auditors, (independent) Directors, Rating Agencies as well as the Regulators will overlook any fraud as long as you can pay them the right price.