iGate exit, TM rating snub mar Satyam sale

21 Mar 2009, ET Bureau
MUMBAI: The sale of scandal-hit Satyam Computer Services appeared to have suffered a couple of glitches, with one bidder dropping out and rating agency Fitch withdrawing its rating for another at the second stage of bidding.

Nasdaq-listed iGate, which had reservations even earlier on customer exits and financial ambiguities, said based on further analysis, it had decided against participating in the bidding. It did not elaborate further and ET could not verify if failure to rope in a private equity investor forced iGate’s exit.

Tech Mahindra, which confirmed it had submitted a detailed Expression of Interest (EoI) on Friday, suffered an immediate fallout because of the risk it was undertaking in bidding for the software company.

Fitch, a credit rating agency, said it had withdrawn Tech Mahindra’s national issuer rating of AAA due to uncertainties on the final closure of the Satyam deal, the financing, and consequent financial impact on the company. The firm had $110 million (Rs 550 crore) of cash on its books as on December 31, 2008. ET had reported that Tech Mahindra had secured a line of credit from five banks to back its EoI.

Satyam shares on Friday closed at Rs 43.90 on the BSE. Besides Tech Mahindra, two other bidders—engineering firm L&T and the Spice group—moved to the next stage in the bidding process for Satyam, showing proof of funds of Rs 1,500 crore, a precondition to be shortlisted.


While a clutch of private equity investors is believed to have submitted their EoIs, they could drop out later. ET had earlier reported that PE firms such are Texas Pacific Group and Kohlberg Kravis and Roberts (KKR), besides IT giant IBM, were interested in Satyam. These entities have not officially confirmed their participation.

Standalone private equity investors will be allowed to take management control of the scandal-hit IT firm. However, if selected, the investor will not be allowed to sell new shares bought through a preferential allotment for three years and existing shares (in Satyam) for six months, said people familiar with the development. L&T, which holds 12% in Satyam, had cash and bank balances of Rs 1,560 crore as on March 31, 2008.

But there was no official communication from the bidder. Spice is participating in the bid process through Spice Innovative Technology, the group’s arm for IT-related activities. The government-appointed Satyam board, which met in Hyderabad on Friday, set up a “virtual data room” (or financial information) to be shared with qualified bidders to help them put a price tag on the company. It will meet in Mumbai on Saturday to scan the bids.

Shortlisted bidders are expected to submit their financial bids after April 10, given a new owner of Satyam will be in place by April 30. Potential bidders will not be allowed to engage with audit firms KPMG and Deloitte to carry out their due diligence. The two firms are re-stating Satyam’s accounts, after its disgraced chairman and founder B Ramalinga Raju admitted to an over $1-billion financial fraud two months ago.

The new owner of Satyam will have to buy up to 31% stake through a preferential offer and the balance 20% through an open offer to existing shareholders. The minimum mandatory public offer will also be made to American Depository Subscribers (ADS) through a depository in US. Satyam, once ranked as the fourth-largest IT services exporter, has seen a number of clients exit over the last two months. These are some of the concerns of the potential bidders, besides the estimated $100-million liabilities that could arise from the lawsuits against the company.