Exclusive: RAJU’S SATYAM STOCK SLIDING

By M H Ahssan

Ramalinga Raju will take some time to recover from the ‘acquisition’ blow it served itself. TOI traces the big IT man’s Bhimavaram to bourses journey, examines its land worth claims and unearths a state decision to sell the company land at throwaway rates in Vizag.

When Byrraju Ramalinga Raju, then 23, returned to India armed with an MBA degree from Ohio in 1977 he did not want to enter his family business of agriculture. He started off with a spinning and weaving mill called Sri Satyam but his first love was constructions, so soon after he spawned a constructions company called Satyam Constructions. Even though this company did not do too well, Ramalinga Raju started acquiring land in Hyderabad - most of it in the Medchal area. Satyam Computer Services was started in 1987, but clearly 21 years later, the first love of the Bhimavaram born boy -who did his B Com from Vijayawada’s Loyola College- remains to be construction. And that is why he has come to grief, his move to use the sizeable cash surplus of Satyam to buy two constructions company - Maytas Infra and Maytas Properties - that are run by his sons bringing forth very violent reactions from the investor community.

Even though the IT operations began in 1987, it was only four years later that Ramalinga Raju was able to make a mark. This, was largely due to his risk taking nature. “ He was the first guy to start outsourcing in India,” says an old IT expert. In 1991 he procured work from an US tractor company called John Deere and since telecom links between India and USA were very poor in those days, Raju came up with the innovative plan of opening an office in Illinois where John Deere was located and hired 50 engineers. Satyam’s office called Little India was connected by means of a 64 kbp line with John Deere’s office and that’s how work was executed. “ There was no physical contact of Satyam’ engineers with the John Deere managers,” the expert points out. Since that day Ramalinga Raju has never looked back even though investors are now demanding his scalp.

The bespectacled Ramalinga Raju started on a company starting spree thereafter. By the end of the century even as the fear of the Y2K bug brought in a lot of business to IT companies, Satyam had spawned many companies - some of them marketing outfits - like Satyam Japan, Satyam Asia, Satyam Asia and Dr Millenium besides Satyam Infoway. But once the Y2K phase was over, many of these companies lost their utility. Satyam Infoway, which as Sify was the first Indian internet company to be listed on Nasdaq was sold off by Raju in 2001. In 2001, Satyam listed on the New York Stock Exchange.

The last eight years have been golden years for the IT industry and for Satyam this has been no exception. Even as software companies like TCS, Infosys and Wipro spread their wings all across the globe and the country so did Satyam. As of now, Satyam has 28 software development centres including in place as diverse as Tokyo, Beijing, Chicago, Munich, Sydney and Sao Paulo. In the country it develops software at Hyderabad, Chennai, Mumbai, Gurgaon and Bhubaneswar. Satyam has on its rolls 52,865 employees and closed the last financial year with revenues of Rs 8473.49 crore. Profit after taxes amounted to Rs 1687.89 crore.

Even though Satyam has been going places, periodically stories have been circulated in the marketplace that the company would be sold to IBM. These stories have been constantly denied but they have still persisted. Even as Maytas floated a couple of years ago started going strong the tales doing the rounds has also been that Raju would now rather concentrate on this real estate company. Insiders also averred that Satyam’s IT operations - though very profitable -were also being hit by quality concerns. “As Satyam became the largest employer in its home state of Andhra Pradesh, there was constant social pressure on it to hire more staff. Since the IT business was expanding through the roof the company management fell to these social pressures and bloated,” an insider says. Two months ago when the impact of the US meltdown began to be felt, Satyam like many others started shedding staff.

But this slowdown has not done Ramalinga Raju in. Rather it is Maytas Infra led consortium’s out of the blue bid to get a contract for Hyderabad’s metro rail project. While most other bidders sought ‘viability gap funding’ (read funds ) from the government for the project that at Rs 12,000 crore is highly capital intensive and not profitable to start with, Maytas actually undertook to pay money to the government. With such an outlandish bid, Maytas bagged the metro rail project but as its bad luck would be the deal came at a time when slowdown came out of the blue. This made raising finances for the company a near impossible task. It is then that Raju, it is averred, conjured up this plan for using Satyam’s huge reserves to fund Maytas’ metro rail project. Raju was not available to cofirm or deny this. But the rest as they say is history.

State awards Satyam; ‘sells’ land at dirt cheap rate: Even as Satyam Computer Services is under the scanner for its bid to acquire Maytas Infra and Matyas properties, it has come to light that the Andhra Pradesh government has allotted over 50 acres of land in Visakhapatnam to it for developing a Special Economic Zone (SEZ) in violation of all rules.

The government order (GO 1439) allotting the 50 acres of land in Kapuluppada village under Bheemunipatnam mandal in Vizag was issued a fortnight ago on December 4, 2008. Auctions by Visakhapatnam Urban Development Authority (VUDA) in the area has secured a price of Rs 5-6 crore per acre, but the state has given away the land at Rs 10 lakh per acre. Describing the pricing as ‘highly arbitrary,’ former union power secretary E A S Sarma - who now lives in Vizag and is a public crusader- told TOI that this has resulted in a loss of Rs 250 to Rs 300 crore to the state exchequer. State government sources also told TOI that the state government has violated all rules “in its anxiety to benefit a private company.”

The VUDA Master Plan states that exo-sensitive areas “like hills, water bodies, forests and sea coasts needs to be conserved.” However, the land allotted to Satyam in Kapuluppuda village is classified as ‘Hill Porampoke’ in revenue records and as ‘Hill and Forest’ in VUDA Master Plan. “Thus the land given to Satyam is part of the ‘eco-sensitive area’ in which the Master Plan prohibits any kind of construction activity,” Sarma said.

Government sources said the land in question is part of the land originally notified by the state government as ‘protected area’ of the Thotlakonda ancient Buddhist archaeological site. “Hence, no construction can be permitted within the ‘protected,’ ‘prohibited,’ and ‘regulated’ areas under the provisions of The (central) Ancient Monuments and Archaeological Sites and Remains Act, 1958, and the AP Ancient and Historical Monuments and Archaeological Sites and Remains Rules, 1960,” a revenue official said.

The allotment of land to Satyam is also violative of the Coastal Regulatory Zone rules. “The land alienated to Satyam falls within CRZ II where no construction activity is permitted. As such, alienation of the land in question not only violates CRZ but also the Master Plan itself,” said officials of the state environment and forests department.

Sarma maintains that Satyam Computers is a profit-making private company. “It has already been allotted two more chunks of prime urban land in Visakhapatnam and many other stretches of urban land near Hyderabad at concessional prices. The land in question here belongs to the public and its alienation at an arbitrarily low price is detrimental to the public interest. The manner in which the land was allotted to Satyam via GO 1439 on December 4 is thus highly improper,” he alleged.

Rs 1 crore per acre realistic estimate?: With the real estate market down in the dumps, financial analysts are questioning as to how Satyam arrived at the valuation of Rs 1 crore per acre of Maytas Properties’ asset of 6,800 acres of land. They point out that the land’s value of Rs 6,500 crores was either arrived at many months ago or it has been a clear case of a ‘favourable self assessment’.

This was the basis on which Satyam had offered to take over shares of Maytas in the now aborted bid. With the company and its board of directors are chary of revealing the name of the consulting firm who did the land valuation, industry circles are abuzz that perhaps the management took the assessment of the consultant only partially and thus cannot credit them publicly for the same. “You either go by purchase price or the market value of the land or get the valuation done by a valuer. The fourth option is to do a self assessment and this is what this Rs 1 crore per acre estimate appears like,’’ said a senior industrialist dabbling in real estate. “These 6,800 acres is spread at various locations and not all of that land is prime.

A more realistic per acre average in the current scenario would perhaps be Rs 50 to Rs 60 lakh per acre or even less. Land in Hyderabad which was priced at Rs 20 to 25 crores per acre is now going for Rs 10 crore per acre for bulk land deals,’’ says the financial officer of a real estate firm. However, he adds that Maytas is the single largest landowner in Hyderabad and almost “all the rocky areas of the city’’ belong to the firm. But what is Maytas all about? Popularly known as the ‘real estate’ arm of the IT major Satyam, industry sources say that the two Maytas firms— Maytas Infra and Maytas Properties— are known for the high quality standards they maintain in their projects. But more than that, they are known for being ‘Satyam backed organisations’.

Maytas Properties is just about five years old and is known largely for its flagship project, Maytas Hill County, which is coming up over an expanse of 300 acres at Bachupally on the outskirts of Hyderabad. The firm owns more land on the same stretch. “Maytas Hill County land would easily be worth Rs 4 to 5 crore per acre,’’ says a senior official of a real estate firm. However, he says that this would account only for 300 acres of land, which is only a fraction of the 6,800 acre land kitty.

The remaining land is in tier II and III cities such as Vizag, Vijaywada, Kakinada in Andhra Pradesh and Nagpur in Maharashtra. The company also owns land in Chennai and Bangalore. Maytas Properties is also developing the Jubilee Hills Landmark Project, which would be spread over 5.7 acres and would house a star hotel and luxury apartments. Project partner ICICI is believed to have disengaged itself from the project but Maytas Properties spokesperson denied it on Wednesday.

But giving Ramalinga Raju sleepless nights is not the downward real estate market but Maytas Infra and its Rs 12,000-crore metro rail project, raising funds for it from the market is now a Herculean task. Maytas Infra is about two decades old and has dabbled in major projects including the Mumbai-Pune expressway, Bangalore elevated highway project, Singapore township in Hyderabad, Machipatnam Port, Calpong Hydroelectric Project in the Andamans, the Gulbarga airport among others. Industry sources point out that the now aborted acquisition bid was essentially to enable Maytas Infra’s metro rail project raise funds from the market.

“Right now the group is only worried about Maytas Infra. There is no other possible reason why it took this ill-advised step,’’ says an industry source.