Larsen Raises Stake in Satyam as Board Arranges Funds

Jan. 23 (Bloomberg) -- Larsen & Toubro Ltd., India’s biggest engineering company, raised its stake in Satyam Computer Services Ltd. to 12 percent to give it greater say in the rescue of the fraud-hit software exporter.

Larsen bought shares in the open market to triple its holding from 4 percent, Chief Financial Officer Y.M. Deosthalee said in by telephone from Mumbai, where the company is based.

Satyam’s state-appointed board has almost arranged funds to help tide over a cash crunch till the end of March, the Hyderabad-based company said today. Larsen said it is raising its holdings to safeguard the engineering company’s interest, amid a flurry of interest from potential bidders to buy the software provider, which is battling to keep customers from defecting.

“This is a win-win both for government and Satyam as Larsen will provide the stability,” said Sanjay Makhija, head of institutional sales at Fortune Financial Services Ltd. in Mumbai. “This investment will provide” a base for Larsen, he said.

Deosthalee declined to comment if Larsen would increase its stake beyond the 15 percent threshold that would trigger a mandatory offer for the company.

“There’s a lot of corporate action happening in the company, we need to make sure we have a meaningful stake in Satyam to safeguard our interest,” Deosthalee said. “We have not made up our mind whether we want to buy the company.”

Final Stages

Satyam, at the center of India’s biggest fraud inquiry, said today arrangements to raise funds were in the final stages and details would be announced before Jan. 28.

“The immovable properties of the company, including all campuses owned by it, are free of any” charge, the company said in a statement sent to the Bombay Stock Exchange at the end of a meeting of its state-appointed board of directors in Hyderabad. “Collections from the receivables have been robust.”

The Indian software provider plans to expedite collection from its customers and take steps to cut costs, the board said.

“The board has also met and interacted with a number of investment bankers and will take a decision in the next few days,” Satyam said in the statement.

Government-appointed directors plan to hire a financial adviser to devise a rescue plan, Deepak Parekh, a nominee on the Satyam board said on Jan. 21.

CEO, CFO Shortlist

The board has short-listed three candidates each for the positions of chief executive officer and chief financial officer and an announcement will be made next week, Satyam said today.

Satyam is struggling to raise cash to pay salaries after its former Chairman Ramalinga Raju said he had inflated assets by more than $1 billion. The provider is also battling to ward off customers from joining State Farm Mutual Automobile Insurance Co. in canceling contracts.

“The selected person will be uniquely qualified to lead the company during this period of transition and will be a leader of global standing and recognition,” Satyam said.

The U.S. Securities and Exchange Commission is said to be investigating whether Satyam misled investors, following inquiries by India’s fraud office, auditing body, markets regulator and local police.

Satyam padded employee numbers to siphon off cash and forged documents to support fake bank deposits, a public prosecutor said in a court in Hyderabad yesterday.

Satyam had about 33 billion rupees ($670 million) of “fictitious and non-existent” accounts, public prosecutor K. Ajay Kumar told a hearing for the company’s arrested founder Raju. The Hyderabad-based company had 40,000 employees, short of the 53,000 claimed by Satyam, he said.

‘No Basis to Doubt’

“The board has confirmed that prima facie, there appears to be no basis to doubt” the employee strength, Satyam said today. “The independent investigation process is expected to reaffirm this fact in the coming weeks.”

Satyam’s state-appointed board this month hired KPMG and Deloitte Touche Tohmatsu to restate the accounts.

India’s government is building a case against Raju two weeks after his admission he’d falsified earnings sparked a plunge in Satyam’s stock.

The charge of diversion of funds was “nothing but imagination,” Raju’s lawyer S. Bharat Kumar told reporters yesterday.

Raju and his younger brother Rama were arrested on Jan. 9 after the former chairman said he had fabricated accounts at India’s fourth-largest software provider for several years. The company’s stock gained 31 percent today, paring its loss since Raju’s admission to 78 percent.

The falsified employee data was used to siphon off 200 million rupees every month and one fixed deposit receipt from HDFC Bank Ltd. was forged, the prosecutor told the 6th Additional Chief Metropolitan Magistrate’s court in Hyderabad.

The employee data as was available on the company’s system was right, Hari Thalapalli, head of marketing and former human resources chief at Satyam, said from Hyderabad yesterday. The provider had 48,000 employees a year ago, Thalapalli said on Jan. 20, citing data from when he headed the human resources department. The computer services provider was likely to have added more employees in subsequent quarters, he said at the time.

Approached by Buyers

Satyam has been approached by potential buyers, board member Tarun Das said this week.

Larsen & Toubro Ltd. has a rescue plan which it will present to Satyam’s board, the Economic Times reported yesterday, without saying where it got the information.

Patni Computer Systems Ltd. and General Atlantic LLC may team up in a bid to buyout Satyam, the Economic Times reported, citing unidentified investment bankers.

Separately, Satyam has finalized short-term funds from India’s Punjab National Bank and Bank of Baroda to meet its working capital needs, the Financial Chronicle reported, without saying where it got the information. Citibank N.A. will maintain an account where money paid by the software company’s customers will be deposited, the newspaper said.

Delays in raising funds and appointing a chief executive officer are costing Satyam customers. At least two of them have given notice about terminating their contracts, according to board member Kiran Karnik, who declined to name the clients in a text message on Jan. 21.