The Great Satyam Robbery

For sheer scale and audacity, the Rs 6,000 crore heist that Satyam promoter Ramalinga Raju attempted is breathtaking. Yesterday, the Satyam board of directors approved the acquisition of Maytas Properties and Maytas Infra for USD 1.6 billion. These two companies are promoted by Mr. Raju's son.

It's no secret that no one is willing to invest in real estate companies. Under the circumstances, this deal boils down to Mr. Raju just giving away a gigantic sum of money to his son.

Incidentally, independent directors on the board include Harvard management guru Krishna Palepu, International School of Business (ISB) dean Mendu Rammohan Rao, and former Cabinet Secretary to the Government of India T.R. Prasad. These distinguished luminaries owe some explanations to the non-promoter shareholders whose interests they were supposed to be guarding.

As things stand now, the company has pulled out of the deal. This is not surprising, given the strong reaction from investors. Overnight, the stock's US-listed ADRs lost 55 per cent of their value.

What will Mr. Raju do now? Well, if my understanding of the typical Indian promoter is correct, he will already be hard at work figuring out a smarter way of taking out the money. Let's face it; this type of theft is very much business-as-usual in India. Promoters have myriad ways of enriching themselves at other shareholders' expense. The only mistake the Rajus made was that they tried a method that is more suitable for smaller companies that don't have heavy institutional shareholding and foreign listings. I guess Maytas must be in deep trouble and they must have been desperate.

It is also logical to speculate that there could be some deeper reason for this desperation. Given what has happened to some other promoters recently, it wouldn't come as a surprise to anyone if it turns out that the Rajus' own stake in Satyam is under some sort of a threat.

Incidentally, the promoters' stake in Satyam is merely 8.6 per cent while institutions hold more than 60 percent. It is possible that Mr. Raju will now see institutions forcing changes in the board and possibly in the management. The 8.6 per cent that Mr. Raju controls was worth just Rs 1300 crore, even before the stock price crashed today.

My sense is that we'll be seeing more of such shenanigans now. For about five years, promoters could make enough money by exploiting the rampant capitalisation increase that was happening on the stock markets. Overvalued IPOs was the method of choice till January 2008. Now, that route has been shut off, Mr. Anil Ambani's Reliance Power having been the last successful exploit of that type.

From now on, poor promoters will have to rely on older, more direct methods like Mr. Raju attempted. But make no mistake, he has been thwarted only because his company was too big and the size of the heist was too big. I'm sure such methods must be working well in smaller companies.
By Dhirendra Kumar of VROL_________