Satyam shares in freefall

January 9, 2009
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, MUMBAI, Jan 9 – Shares in fraud-hit Indian outsourcing giant Satyam Computers continued their freefall on Friday, as investors dumped the stock on fears over its future and US-based shareholders sought legal redress.

Satyam stock fell 71.2 percent or 28.45 rupees (58 US cents) to a day\’s low of 11.5 in early trade Friday, before recovering marginally to 21.65 rupees, still down more than 45 percent by Friday noon.

The broader benchmark 30-share Sensex fell 264.78 points or 2.76 to 9,322.1.

New York-listed Satyam, India\’s fourth-biggest software firm with clients in 65 countries, has in recent years been on the investment list for several top Indian and global mutual funds.

But nervousness set in on reports that at least two US shareholder lawsuits have been filed against the Hyderabad-based firm by late on Wednesday.

That followed revelations by founder-chairman B. Ramalinga Raju that company accounts and assets were falsified and profits inflated to the tune of more than $1 billion.

The law firm of Izard Nobel said it filed a suit seeking a class action in New York on behalf of people who purchased the American Depositary Receipts (ADRs) of Satyam Computer between January 6, 2004 and January 6, 2009.

The suit alleges that Satyam and its executives violated US securities laws "by issuing materially false and misleading statements," the firm said in a statement.

Satyam ADRs, or US-traded shares, fell 90 percent after the fraud was revealed.

Another lawsuit was filed in New York by the firm Vianale and Vianale, based in Florida, a statement from the law firm said.

"Strategic and long-term investors will now be seriously discouraged by untrue financials and suspicion that Raju could not be the only one involved in the scam (and some in the company could be involved)," said Viju George, analyst with brokerage Edelweiss Securities.

A complete catastrophic decline for the firm has been averted with the appointment of an interim leadership team, they said.

"But we believe that odds in favour of a takeover are now diminished and the company\’s survival is at stake," George said.

"People do not want anything to do with the company. We believe the entire company will come under legal scrutiny," said Nirmal Jain, chairman and managing director with equity research firm India Infoline.

Responding to the fraud, the Mumbai stock exchange said Thursday it would replace Satyam with Sun Pharma in its 30-share Sensex index, while Reliance Capital would replace it on the National Stock Exchange\’s Nifty index.

Senior Satyam management moved into damage-control mode on Thursday, pledging to continue operations, despite being rocked by Raju\’s admission of false accounting.

They insisted they were unaware of the scam, that has prompted comparisons with the collapse at US energy giant Enron and prompted fears for the impact on foreign investment in Indian business and corporate governance standards.

Investors remain jittery as a regulatory probe got underway.

"These were mind-numbing revelations. Over the medium term we expect the global perception of Indian companies to be impacted," said Hitesh Agrawal, head of research with brokerage Angel Broking.

"I do not understand why Raju is not in jail. It is a clear economic fraud, regulatory action must be swift," said R. Balakrishnan, executive director with brokerage Centrum Broking.

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