Maytas Flounders as Satyam Fraud Inquiry Curbs Funds

Jan. 23 -- Maytas, the construction group embroiled in India’s biggest fraud inquiry, may struggle to survive as the investigation stalls funds needed to build roads and houses and investors dump the stock.

Maytas Infra Ltd. has fallen by its daily limit since Satyam Computer Services Ltd. founder Ramalinga Raju said he’d tried to merge the family’s software and property groups to cover up a $1 billion accounting fraud. The takeover was vital to ease a credit squeeze at the Maytas companies as banks curbed lending to real estate and infrastructure, Raju’s son, B. Rama Raju Jr., said.

“We thought Satyam could be the anchor for our businesses, but it has turned into an albatross around our neck,” Rama, the 28-year-old vice chairman of closely held Maytas Properties, said in an interview yesterday.

Maytas Infra’s chief executive has quit, part of the Raju family’s stake has been taken over by banks, and the 23-year-old company can’t report earnings because it’s tied up with the fraud investigation. The inquiry imperils road, power and port projects and may bring down Raju’s group before he comes to trial.

“It’s pretty obvious that they are in deep trouble,” Apurva Shah, the head of research at Prabhudas Lilladher Pvt. in Mumbai, said by telephone. “Existing creditors have no choice but to live with it, but few if any new creditors will consider doing business with Maytas.”

Rama denied reports in the Economic Times and other local newspapers that his father had siphoned off funds from Satyam for the real estate group. Prosecutors allege executives at Satyam, India’s fourth-largest software exporter, padded employee numbers, forged bank documents and diverted funds for real estate deals.


“We never got a single penny from Satyam,” Rama said. “Whatever assets that are in Maytas was acquired by Maytas with its own money, these are the assets acquired over three decades from my grandfather’s days.”

Ramalinga Raju on Dec. 16 proposed that Satyam would buy a 31 percent stake in Maytas Infra from his family, and an additional 20 percent from minority shareholders, as well as all of Maytas Properties, for $1.6 billion.

Less than 12 hours later, he reversed the decision after investors including Templeton Asset Management Ltd. said they were “willing to go to any length” to prevent the deals.

The family and related companies controlled a 36.6 percent stake in Maytas Infra as of Sept. 30, filings with the stock exchange show.

Shares of Maytas Infra have since lost more than 80 percent of their value, and are now almost a quarter of its October 2007 initial sale price of 370 rupees. Raju, in his Jan. 7 letter admitting to inflating assets and profits at Satyam for several years, called this aborted bid a “last attempt to fill the fictitious assets with real ones.”

‘A Prudent Decision’

“It was a prudent decision as bank funds were getting tight for real estate and infrastructure,” Rama Raju said in the interview. “It could have benefited Satyam as well, with the kind of growth potential in these sectors.”

Maytas Infra’s revenue increased sevenfold to 16.4 billion rupees in the two years to March 31, according to its last annual report. Its profit climbed more than fourfold, and the workforce surged to 2,350 people, from 372 in March 2006.

The company’s ongoing projects include a 7.5 billion rupee power project in Senegal, Africa, and a 5.4 billion rupee township project in Hyderabad, according to the company’s last annual report.

Still, its biggest clients are the National Highway Authority of India and state governments, who’ve awarded the company a 4.15 billion rupee contract for the Hyderabad outer ring road, a 3.3 billion rupee dam project, the 2.24 billion rupee Bangalore elevated highway project, and a 3.16 billion rupee canal project, according to its last annual report.

Being Investigated

Maytas Infra yesterday said it has sought an extension on reporting quarterly results as its accounts are being investigated by the government, and its finance team hasn’t been able to compile statements for the three months ended Dec. 31.

The company’s biggest shareholders were forced to transfer their stakes to finance companies to cover loans as “a result of invocation of pledge,” according to a filing by the Hyderabad- based company to the Bombay Stock Exchange on Jan. 21.

Maharashtra state scrapped a 4.8 billion rupee contract with Maytas Infra, Press Trust of India reported that same day, citing Chief Minister Ashok Chavan.


Nevertheless, customer attrition was being closely monitored at the board level and it has seen "no material impact so far". The employees attrition also remained well under control. "Associates continue to show great resilience and exceptional commitment towards the company during these challenging times, in spite of the sustained media onslaught," the board commented