Ever since my last post on Agency Problem at Satyam, things have unfolded in quite an unexpected way at Satyam. We have seen many rumours going around the market, only few of which can stand the veracity test.
The first was regarding the allegation that Mendu Rammohan Rao, dean of the Indian School of Business, one of the independent directors of Satyam, was not consulted before calling off the Maytas acquisition. This issue raises questions on the corporate governance followed at the leading IT company of India.
To placate the investors and regain the lost trust, Satyam announced that it will consider issue of dividends to the shareholders. There was also the news of a possible buyback of shares. Both of these proposals will be decided upon during the board meeting on 29th December. If we look the comparative figure of the dividend history of top Indian IT companies like Infosys, Wipro and TCS, alongside that of Satyam, the observation that strikes us is that Satyam has never been a huge dividend distributor. Its dividend rate has been a flat 175% in the last few years.
The first was regarding the allegation that Mendu Rammohan Rao, dean of the Indian School of Business, one of the independent directors of Satyam, was not consulted before calling off the Maytas acquisition. This issue raises questions on the corporate governance followed at the leading IT company of India.
To placate the investors and regain the lost trust, Satyam announced that it will consider issue of dividends to the shareholders. There was also the news of a possible buyback of shares. Both of these proposals will be decided upon during the board meeting on 29th December. If we look the comparative figure of the dividend history of top Indian IT companies like Infosys, Wipro and TCS, alongside that of Satyam, the observation that strikes us is that Satyam has never been a huge dividend distributor. Its dividend rate has been a flat 175% in the last few years.
(Source: Capitaline database)Click on image to enlarge
Thus as expected, the market and Satyam's shareholders were not enthused with this new gimmic and its scrip continued its fall southwards.
(Source of data: Bloomberg)
Click on image to enlarge
Click on image to enlarge
As if this was not enough, we had rumours of the Chairman and Founder, B Ramalinga Raju, resigning from the board. Though later it was passed off as baseless. But, one issue did raise its head due to the spread of this rumour. Unlike its competitors Infosys and Wipro, Satyam has not groomed any future leader who can replace Raju in case of his retirement or resignation. So, the talk of the need of a succession plan will keep making rounds of the town, for the time to come. Speculation was also rife that Wipro Technologies might acquire Satyam, that was later denied by both the companies.
And then came the worst of them all, but this time it was no rumour ! The World Bank had barred Satyam Computer Services from doing any businesswith it for the next eight years. During the last five years, the World Bank had paid Satyam hundreds of millions of dollars for its global IT maintenance and service. There was a slew of rumours this time, as to the actual reason of this harsh action. But, as is clear from the World Bank group statement, Satyam was debarred for providing improper benefits to Bank staff (i.e. Bribery) and for failing to maintain proper documentation. The bank also verified that Satyam was not involved in malicious attacks on the Bank’s information systems, as was rumoured. So, for now the one-week high powered drama seems to have subsided, but what took 22 years to build was surely dented in a few days time.
The World Bank Group Statement on Debarment of Satyam
(Copyright image)
Click on image to enlarge
And then came the worst of them all, but this time it was no rumour ! The World Bank had barred Satyam Computer Services from doing any businesswith it for the next eight years. During the last five years, the World Bank had paid Satyam hundreds of millions of dollars for its global IT maintenance and service. There was a slew of rumours this time, as to the actual reason of this harsh action. But, as is clear from the World Bank group statement, Satyam was debarred for providing improper benefits to Bank staff (i.e. Bribery) and for failing to maintain proper documentation. The bank also verified that Satyam was not involved in malicious attacks on the Bank’s information systems, as was rumoured. So, for now the one-week high powered drama seems to have subsided, but what took 22 years to build was surely dented in a few days time.
The World Bank Group Statement on Debarment of Satyam(Copyright image)
Click on image to enlarge
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