Indian government extends Satyam probe to linked firms

Reuters
Monday, January 19, 2009

BANGALORE (Reuters) - Fraud-hit Satyam Computer Services Ltd said on Monday a U.S.-based client had canceled its contract, and the Indian government widened its probe to two firms linked to Satyam's jailed founder.

The government said the Serious Fraud Office's investigation into India's biggest corporate scandal had been extended to include Maytas Properties Ltd and Maytas Infra Ltd , the two firms Satyam tried to take over in mid-December before hastily backing down in the face of a shareholder revolt.

Corporate Affairs Minister Prem Chand Gupta told reporters investigators had informed the government about an "apparent nexus between the events that have taken place in Satyam and the following companies amongst others -- Maytas Properties Ltd and Maytas Infra Ltd."


Satyam, India's No. 4 software services exporter, was plunged into crisis after founder Ramalinga Raju resigned as chairman earlier this month, revealing profits had been falsified for years and $1 billion of cash on the books did not exist.

In his January 7 resignation letter, Raju said the deal to buy the Maytas firms was his last attempt to resolve the problem of fictitious assets on the Satyam balance sheet. Maytas is Satyam spelt backwards.

Maytas Infra Ltd, a construction company in which Raju and his family hold a 36 percent stake, said on Monday its chief executive had resigned in letter sent on January 14.

CUSTOMER CANCELS

Satyam, which specializes in business software, said earlier on Monday that a U.S.-based client, State Farm Insurance Co, had canceled its contract,

"While we are disappointed in State Farm's decision to discontinue services, our executives are reaching out to clients around the world, and at this point, well over 90 percent of our clients have committed to continuing with Satyam," the company's spokeswoman said. She declined to give details of the contract.

A tech sector analyst with a Mumbai brokerage firm said State Farm was one of the top 10 clients for Satyam , who together accounted for a third of the outsourcing firm's revenue in the July-September quarter last year.

The analyst, who asked not to be named as he was not allowed to speak to the media, said he was briefed about Satyam's top clients and their revenue contribution a few months back by the company's management.

Shares in Satyam, which have tumbled about 85 percent since the scandal broke, ended up 4.1 percent at 25.45 rupees in a Mumbai market that edged up 0.1 percent.