Top executives of beleaguered Indian outsourcing company Satyam Computer struggled to reassure investors, employees and clients Thursday after its chairman resigned following an admission he cooked accounts and inflated profits for years.
"We are assuring them of our determination to fix this in every which way possible," Ram Mynampati, the company's interim chief executive officer told reporters, adding the company would cooperate in the fraud investigations.
Satyam's balance sheets — riddled with "fictitious" assets and "non existent" cash — contained a $1 billion hole that could no longer be concealed after a deal intended to save the struggling company was abandoned, company founder B. Ramalinga Raju said in a Wednesday letter to the board.
Mynampati said the company's top executives relied on audited accounts and were "shocked" by Raju's admissions. He said its auditor, PricewaterhouseCoopers, would be contacted for an explanation soon.
Chief financial officer V. Srinivas resigned Thursday, Mynampati said at a televised news conference in the southern city of Hyderabad.
The scandal has shaken investor confidence and prompted Indian business leaders to urge authorities to beef up corporate governance.
Infosys Technologies Ltd., another big outsourcing company, said Thursday the fraud was deplorable and the government and regulators "must investigate and make necessary changes to regulations so that such incidents do not happen in future."
The scandal comes at a delicate time for India's information technology companies, which are struggling against a global slowdown and waning economic growth at home. India's IT firms derive 40 percent of their global revenues from financial services clients.
Mynampati said board members were investigating the details of a letter that Raju had written to them. He didn't outline the contents of that letter, but said Satyam's "liquidity on the balance sheet is not very encouraging."
Employee salaries have been paid through December but some vendors were still awaiting payment and Satyam was considering "options in terms of outstanding responsibilities," he said.
It was not clear where Raju went after he quit Wednesday, said company spokeswoman Archana Uttapa.
Mynampati said he had not heard from Raju since Wednesday morning, when he spoke with senior executives on a conference call.
Trading on India's stock exchanges was closed Thursday because of a holiday, but on Wednesday, news of the fraud at Satyam Computer Services Ltd. dragged the benchmark Sensex stock index down 7.3 percent — with Satyam's shares plummeting nearly 78 percent.
On Thursday the Bombay Stock Exchange issued a notice saying it was removing Satyam Computers from the Sensex.
The chief minister of Andhra Pradesh, the south Indian state where Satyam is headquartered, wrote Thursday to Prime Minister Manmohan Singh asking him to appoint a management team that could restore confidence in the company and help protect its employees and investors.
The company employs 53,000 people — among the 2 million Indians working in the country's booming high-tech industry, which last year brought in an estimated $40 billion. Satyam's clients include a slew of Fortune 500 companies including Nestle, General Electric and Ford Motors.
Holders of the company's U.S.-listed shares — which have been halted from trading on the New York Stock Exchange while regulators investigate — have filed two class action suits against Satyam, the law firms representing the investors said in separate statements.
The suits filed by Vianale & Vianale LLP and Izard Noble LLP allege Satyam and its top executives issued false and misleading financial statements and violated federal securities laws, the statements on their Web sites said.
A leading business grouping, the Confederation of Indian Industry, has demanded that the loopholes in regulation, accounting, audit and governance that allowed such lapses be addressed with urgency.
Amar Ambani, a vice president of brokerage firm India Infoline Financial Ltd., said the manipulation of accounts at Satyam had the potential to severely dampen foreign institutional and direct investment into India.
"This raises serious doubts about the involvement of auditors and independent directors in the working of a company," Ambani said.
With the scandal raising questions about the quality of corporate governance in India, there were plenty of comparisons to the collapse of U.S. energy giant Enron Corp.
Satyam, which means "truth" in India's ancient Sanskrit language, had "inflated profits over a period of (the) last several years," Raju said in his letter, which was released to the Bombay Stock Exchange.
But one analyst said while panic would be an immediate fallout of the Satyam scandal it would not have a lasting impact on either India's outsourcing industry or the country's investment potential.
"In the U.S. you had the Enron case and that didn't shake the investor confidence in the U.S.," said Surjit Bhalla, managing director of Oxus Research and Investments in New Delhi. "The global slowdown is 10 times more important in terms of what will happen to the outsourcing industry than Satyam."
Satyam sought to downplay Indian media reports saying many employees were worried about their jobs and getting their resumes ready.
"There is no concerted move by employees to quit and find new jobs as of now," said Uttapa, the company's spokeswoman. "All Satyam offices are open and working as normal."