By M H Ahssan
In the larger ‘public interest’, the debris of the corporate fraud at Satyam Computer Services must be cleaned up by the hapless taxpayer — on that score, there isn’t much doubt or debate. And why should there be?
After all, we live in a world where it has come to be expected that rewards of capitalism are for private enjoyment while its pains must be shared by the public.
Who will dare snigger if the Indian government takes an equity stake in the country’s fourth-biggest software company? (There’s some speculation, as I write, that the government will inject cash directly into the beleaguered company by subscribing to Satyam’s preference shares.)
If auto companies are systemically important to the US, we can always claim that exporting technology services is vital to us: it is the only real success we have had so far in capturing our demographic dividend. Keeping two million youngsters employed in well-paying, white-collar jobs does wonderful things for the economy. If it weren’t for the software industry, the median age of the Indian homebuyer would still be 50 years.
One shudders to think of the impact on our consumption-led economy if Indian geeks got shut out of the global labour-arbitrage market. It would be a tragedy if that happened simply because some of their managers got carried away and helped themselves to other people’s money for a little bit of property speculation on the side.
No, the task at hand for Satyam’s state-appointed directors is clear. They have to somehow save the 53,000 jobs that are at risk, now that Satyam has begun to sink under the weight of its founder B Ramalinga Raju’s abject betrayal.
Let’s face it: Satyam is sinking. Banks are unwilling to lend to the company before the new auditors have had a chance to restate the company’s financial accounts.
“A business with 53,000 employees and 185 Fortune-500 clients must have some worth,” Infosys Technologies chairman N R Narayana Murthy said recently on a CLSA conference call. But exactly how much is that worth? Until the answer to that question is known, equity investors, even those who have evinced a preliminary interest, will be hesitant to come forward with a rescue plan.
Getting the accounts in order will take time. And time is the other thing — besides liquidity — that the company doesn’t have. The enterprise value of Satyam will drop as its brightest employees leave the sinking ship, and as its customers switch to competition.
An efficient way to disentangle Satyam’s business from its damaged financials could be to form a new entity — let’s call it ‘Sundaram’ — into which Satyam’s contracts and employees get transferred out, while liabilities to known and unknown creditors are left behind on Satyam’s emaciated balance sheet.
It shouldn’t take much time to find a private-sector buyer for, say 76%, of Sundaram. The remaining 24% should be opportunistically held by the government for divestment at a later date, when the global economy comes out of its present difficulties and valuations for Sundaram improve under new management. In the short run, a clean balance sheet will allow the new company to raise working capital, the lack of which threatens to choke Satyam to death.
India doesn’t have a Chapter 11 bankruptcy mechanism to do any of this formally.
An informal “workout” with creditors is the only viable solution for reorganising the company. Satyam’s creditors will whine, but they’ll eventually realise that they don’t have a better option. If Satyam implodes or dies a slow death, the creditors’ claims will have to be met from Satyam’s real estate, computers and coffee machines.
Even if we assume that Satyam did have a lot of cash, which was siphoned off to other family-run companies — or paid out as bribes to politicians — what are the odds that the money would come back to Satyam in the next 10 years? Zero, if you ask me.
On the other hand, if Sundaram is quickly sold as a going concern, and the government’s profit on its 76% stake sale is brought into Satyam, creditors will also be able to get a share of Satyam’s goodwill, before all of it is lost. If creditors continue to resist, the deal for them could be further sweetened by giving them equity options in Sundaram. As for the government’s remaining 24% stake in Sundaram, the returns on that investment should be used to compensate the taxpayer for the bailout.
None of this will happen if the government simply asks a pliant state-owned bank to give Satyam a couple of thousand crore rupees to pay wages for the next few months. Limiting the scope of the bailout to temporary cash relief misses the point that Satyam is in a business where no customer will deal with a vendor whose survival is in doubt.
It’ll be unfair to give a hobbled Satyam to a new CEO and ask him or her to compete with IBM, Accenture, TCS and Infosys for business, talent and new capital.
If a bailout is the only option, then let it at least be a bold and creative one.
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