Satyam bidder will have to stay put in SPV for 3 years

16 Mar 2009, ET Bureau

HYDERABAD: The government-appointed board of Satyam Computer Services has attempted to ensure that an investor or a group that gains controlling stake in the IT firm will have the responsibilities of steering the firm out of the current crisis and stabilising its operations.

The ground rules for suitors, laid down by the board, make it clear that a bidder, who floats a special purpose vehicle (SPV) to buy into Satyam, cannot sell his stake in the entity (SPV) for three years. The extra caution has been taken to ensure that if an SPV acquires Satyam, it does not jump the ship mid-way.

The new owner, in any case, cannot sell shares of Satyam that he acquires through a preferential allotment for three years. The board has fixed a minimum lock in of three years to keep frivolous bidders away.

In addition to this stipulation, the board has also said there cannot be any change in the controlling interest in an SPV for three years from the date of the preferential allotment, if the bidder uses this route. A change, if any, in the shareholding pattern of the SPV, would require prior approval of the capital market regulator Sebi and the Company Law Board (CLB), said sources privy to the development.

An SPV is a separate legal entity created to handle a venture on behalf of a parent company, and has a structure that makes its obligations secure even if the parent goes bankrupt.

Bidders, that need to raise money to acquire Satyam, are likely to float SPVs. There could be different permutations and combinations, including tie-ups with private equity firms, for SPV. A clutch of private equity firms, including Texas Pacific Group and Kohlberg Kravis and Roberts (KKR), are in the race for Satyam, besides IBM and domestic firms L&T, Tech Mahindra and BK Modi-promoted Spice Group.

Satyam needs a capital infusion of Rs 1,000 crore, of which around Rs 700 crore will be used to repay loans. The bidder will have to show proof of availability of Rs 1,500 crore ($190 million) while submitting the detailed expression of interest (EOI). Bidders will have to submit their detailed EOI by March 20, and those shortlisted will then be given access to information on Satyam.

The board has, however, said it cannot, with certainty or accuracy, re-state Satyam’s accounts. But lack of clarity on the financials and legal liabilities of Satyam may make it tough for bidders to put a price tag on the firm.

The IT firm is struggling for survival after its defamed founder B Ramalinga Raju admitted to perpetrating a Rs 7,000-crore financial fraud. A successful bidder will have to deposit funds needed to buy the company ahead of the preferential allotment of shares in the troubled company, and could find its bid disqualified if it fails to put in place the required funds, people familiar with the matter said.

As reported by ET on Sunday last, qualified bidders will have to furnish a Rs 100-crore guarantee while putting in their final financial bids and suitors will not be allowed to change the bid p