RAMALINGA RAJU PROFILE

Born: September 16, 1954

Achievement: Founder and Chairman of Satyam Computer Services Ltd; Chosen as Ernst & Young Entrepreneur of the Year for Services in 1999

Ramalinga Raju is one of the pioneers of the Information Technology industry in India. He is the founder and Chairman of Satyam Computer Services Ltd.

Ramalinga Raju was born on September 16, 1954 in a family of farmers. He did his B. Com from Andhra Loyola College at Vijayawada and subsequently
did his MBA from Ohio University, USA. Ramalinga Raju had a stint at Harvard too. He attended the Owner / President course at Harvard.

After returning to India in 1977, Ramalinga Raju moved away from the traditional agriculture business and set up a spinning and weaving mill named Sri
Satyam. . Thereafter he shifted to the real estate business and started a construction company called Satyam Constructions. In 1987, Ramalinga Raju
founded Satyam Computer Services along with one of his brothers-in-law, DVS Raju. The company went public in 1992. With the launch of Satyam Infoway
(Sify) Satyam became one of the first to enter Indian internet service market. Today, Satyam has a global presence and serves 44 Fortune 500 and over 390
multinational corporations.

Ramalinga Raju has won several awards and honors. These include Ernst & Young Entrepreneur of the Year for Services in 1999, Dataquest IT Man of the
Year in 2000, CNBC's Asian Business Leader - Corporate Citizen of the Year award in 2002 and E&Y Entrepreneur of the Year Award in 2007.

SATYAM COMPUTERS ACCOUNTING FRAUD

Truth about Satyam: rise and fall of Ramalinga Raju

Bangalore: Byrraju Ramalinga Raju, 54, chairman of Satyam Computer Services Ltd and lover of
science fiction works by Isaac Asimov and Arthur C. Clarke, will be remembered in Indian
business history—not the way he would have wanted, as a successful software entrepreneur,
but as the perpetrator of the country’s biggest corporate fraud, one that saw his company resort
to fiction to burnish its performance.

It used to be said that Hyderabad had two major landmarks: the Charminar and Ramalinga
Raju, who created the company, Satyam Computer Services. Satyam means truth, but Raju,
who resigned as chairman on Wednesday, owned up to creating a tissue of lies.

Ramalinga Raju belongs to a family of farmers from Bhimavaram near the Andhra Pradesh city
of Vijayawada. His father, Satyanaryana, helped create the family fortune in a small way,
shifting in the early 1960s to Hyderabad and starting a textile business even as he bought more
land for farming. Ramalinga Raju has in the past said that it was his father who inspired him to
start Satyam.

Ramalinga Raju recently told Business Today magazine that after returning from the US with a
master’s in business administration (MBA) degree from Ohio University, “I had all the
enthusiasm and passion to do something…of being an entrepreneur. A friend told me about a
part-time teaching opportunity at the Administrative Staff College of India. This really appealed
to me. But, in late 1977, over dinner one night, my father told me: It is always important to
stay focused and to avoid distractions.”

Ramalinga Raju chose to enter the relatively new business of providing software services to
international customers from India. Satyam, launched in 1987, started offering such services
initially onsite to tractor maker John Deere and Co. In 1991, the company raised money through
a share sale and listed on the Bombay Stock Exchange.

It was in 1994 that Satyam got its big break when it allied with Dun and Bradstreet Corp. The
partnership was short-lived, but by the time it ended, Satyam was well on its way to growth.

What separated Satyam from rivals such as a Tata Consultancy Services Ltd or an Infosys
Technologies Ltd was Raju’s preference for executives and associates who spoke the same
language he did: Telugu.
“For Raju, family, caste and those who could speak Telugu came first. I am not saying he was
not a professional, but other things being equal, he would look at things in that order,” said a
former employee of Satyam Infoway Ltd, the Internet firm Raju eventually sold to a non-
resident Indian entrepreneur, Raju Vegesna.

Raju’s brother Rama Raju was managing director of Satyam and till 2000, his brother-in-law
Chinta Srinivasa Raju used to head a key division.

“At one point of time there were so many Rajus (in the company) that it would be difficult to
identify who was who,” said an executive at a software firm, who did not want to be identified.

Raju’s food preferences were also local—he preferred spicy Andhra food, though he admitted to
this writer once that he also liked hot Thai food.

Diversified interests

Raju was always keen on other businesses, and the controversy over Satyam’s attempt to buy
two Maytas companies wasn’t the first such he faced.

In 1998, the publicly listed Satyam Computer Services had to declare that it would not invest in
Satyam Constructions Ltd, a family-owned company, after news reports to that effect roused
investor ire. Satyam had also floated a clutch of companies, including one for the Internet
(Satyam Infoway) and to address large customers (Satyam Enterprises). At various points of
time, these were either merged back into the parent or spun off and sold.

In 2000, at the height of the dot-com bubble, Satyam Infoway paid Rs500 crore to Rajesh Jain-
owned IndiaWorld, which was essentially a clutch of websites. In 2001, Satyam Computer
Services listed on the New York Stock Exchange (Satyam Infoway did so on Nasdaq in 1999).

With the real estate sector booming, the Rajus re-entered the business. Maytas Properties Ltd
(Maytas is a palindrome for Satyam) and Maytas Infra Ltd were looked after by Raju’s sons Teja
Raju and Rama Raju. Maytas Infra even won the Hyderabad Metro rail project. Satyam,
however, had to cope with tough competition and a tougher business environment. The
company also had to meet analyst and investor expectations.

In a letter to Satyam’s board on Wednesday, Raju confessed to having cooked the company’s
books and overstated revenue and profits. He added that Rs5,040 crore of the cash that is
supposed to be on Satyam’s books simply doesn’t exist.

Srini Raju, who stepped down as executive director of Satyam in 2000, said Raju’s revelations
came as a surprise to him. He now runs Peepul Capital Llc., which has $325 million (Rs1,580
crore) of funds under management. He also runs news channels in several languages under the
TV9 brand.

“I am shocked and yet to digest what has happened,” Srini Raju said. “Satyam Computer is one
of the iconic companies of Indian software industry and fudging of accounts by such a company
will have a very high impact on the industry as a whole.”

Raju must have known this as his letter indicates. His letter refers to “the tremendous burden
on my conscience” and likens Satyam’s descent into financial purgatory to “riding a tiger”.

Raju admits to accounting fraud, resigns

Hyderabad/Bangalore: In a startling confession that shocked his peers and sent the stock
market tumbling, Satyam Computer Services Ltd chairman Byrraju Ramalinga Raju confessed to
cooking the company’s books over several years to the extent that Rs5,040 crore of cash on the
company’s balance sheet doesn’t exist.
 Raju’s confession and resignation were communicated in a letter
addressed to the company’s board and caps several weeks of
trouble for the software services firm that began on 16
December when Raju got Satyam’s board to agree to buy two
other companies his family owned for $1.6 billion.

The move, the letter says, was the last-ditch attempt to get
some real assets into Satyam’s books in place of virtual money.

Later in the day, Raju’s brother and the company’s managing director B. Rama Raju also
resigned.

The confession and the magnitude of the accounting irregularities point to serious lapses in
corporate governance and raise questions about the role of Satyam’s external auditor Price
Waterhouse and of the board and especially the independent directors of the company, many of
whom have resigned in the past weeks.

C.B. Bhave, the head of India’s stock market regulator Securities and Exchange Board of India,
or Sebi, and Prem Chand Gupta, the minister for corporate affairs, both said separately that
they would launch an investigation into the matter and take “co-ordinated action”.

Photo: Madhu Kapparath / Mint

Since Satyam is listed on the New York Stock Exchange, the US Securities and Exchange
Commission, too, could take action against the company. The US listing also makes Satyam and
its directors vulnerable to lawsuits in that country. It also means that Satyam’s CEO and CFO
(Srinivas Vadlamani) signed off on the accounts in keeping with the US Sarbanes-Oxley Act. The
violation of this is punishable by fines and imprisonment for up to 20 years.

Analysts were unclear on the future of the company, although some said it could be taken over
by a rival or a private equity firm—either as a whole or in parts.

Even as the firm’s interim chief executive Ram Mynampati sent out a mail reassuring
employees, research firm Forrester said up to 50% of Satyam’s clients could chose to take their
business elsewhere, a move that will likely benefit Satyam’s rivals such as Infosys Technologies
Ltd, Wipro Ltd and Tata Consultancy Services Ltd.

And recriminations were quick to flow. Speaking on television channel CNBC TV18, Mahindra
and Mahindra Ltd’s vice-chairman Anand Mahindra said the Satyam incident had damaged
India’s image globally. Brokerages downgraded the stock and one of them, Credit Suisse Group
AG, suspended its coverage of the stock. The National Stock Exchange, or NSE, dropped Satyam
from its benchmark Nifty Index and the Bombay Stock Exchange, or BSE, is expected to follow
suit by dropping the stock from its Sensex index.

India’s Enron

In a scam that analysts and journalists have been quick to dub “India’s Enron”, Satyam’s main
promoter and chairman Raju admitted to fudging the company’s account books to the tune of at
least Rs7,136 crore, over a period of “several years”.

Ramalinga Raju
Chairman, Satyam
Raju’s letter reveals that the gap between real numbers and imagined ones on the company’s
books finally forced him to propose the controversial $1.6 billion plan to acquire infrastructure
firms Maytas Properties and Maytas Infrastructure, promoted by his sons, to “fill the
fictitious assets with real ones”.

In the letter, copies of which were also sent to the stock exchanges and Sebi, Raju confessed
that, as on 30 September, Satyam’s books were fudged to show bank balance of Rs5,040 crore,
accrued interest of Rs376 crore, an understated liability of Rs1,230 crore, and an overstated
debtors position of Rs490 crore.
While the exact reason for the timing of Raju’s confessional statement isn’t known, it may have
have been prompted by DSP Merrill Lynch, which found “material accounting irregularities” in
Satyam’s account books.

Merrill Lynch was hired on 6 January as an adviser for finding strategic options to enhance
shareholder value of the company in the wake of the aborted $1.6 billion acquisition plan, which
attracted the ire of investors and led to steeply lower valuation of the company’s shares on the
stock markets.

Merril Lynch president Kevin Watts informed Sebi, BSE and NSE on Wednesday of the
accounting irregularities and his firm’s decision to pull out of the advisory engagement with
Satyam.

Shares of the company closed 77.9% down on the BSE, while in pre-market trading on the New
York Stock Exchange, the company’s shares were down by 84%.

For the September 2008 quarter alone, Satyam reported an inflated operating profit of Rs649
crore against an actual operating profit of only Rs61 crore.

Raju’s resignation letter confirmed that the fraud has been going on for “several years”.

“What started as a marginal gap between actual operating profit and the one reflected in the
books of accounts continued to grow over the years. It has attained unmanageable proportions
as the size of the company operations grew significantly,” Raju said. “Every attempt made to
eliminate the gap failed.”

Ending the mystery over why the company’s promoters had to pledge their shares, Raju wrote
in his resignation letter that in the past two years, “Rs1,230 crore was arranged to Satyam (not
reflected in the books of Satyam) to keep the operations going...”

“As the promoters held a small percentage of equity, the concern was that poor performance
would result in a take-over, thereby exposing the gap,” Raju said.

“Stern action”

Although Raju’s letter sought to absolve Satyam’s employees and other board members of the
blame, the ministry for corporate affairs said the matter would be referred to Serious Fraud
Investigation Office.

“Stern action under the law would be taken against the guilty after verifying the facts,” minister
Gupta said.

While declining to comment on what action will be taken, spokesperson for the New York Stock
Exchange, Christiaan Brakman said that they were “closely monitoring the situation, including
the latest developments”.

Satyam spokesperson said that “its immediate priorities are to protect the interests of its
shareholders, protect the careers and security of its approximately 53,000 associates, and meet
all its commitments to its customers and suppliers”.

Following the revelations the spotlight is now sharply focused on the auditors for the company,
Price Waterhouse as well as Satyam CFO Vadlamani.

“It is a monumental fraud. How can Rs7,000 crore be hidden in the books without the
knowledge of CFO and statutory auditors?” asked Omkar Goswami, an independent director on
Infosys’ board and chairman of that company’s audit committee.

“We have learnt of the disclosure made by the chairman of Satyam Computer Services and are
currently examining the contents of the statement. We are not commenting further on this
subject due to issues of client confidentiality,” a PricewaterhouseCoopers spokesperson said.
Price Waterhouse is one of the audit arms of audit and consulting firm PricewaterhouseCoopers.

However, Ved Jain, the president of the statutory body that regulates the profession of
chartered accountants in India, the Institute of Chartered Accountants of India, said the audit
firm will be banned from practising in India if it was found to be involved in this fraud.

Shock and disbelief

National Association of Software and Services Companies, or Nasscom, the industry grouping of
the software sector, expressed its shock at the disclosures made by Raju.

“While the law will take its course, this incident is particularly unfortunate as the Indian IT-BPO
(information technology and business process outsourcing sector) industry had set very high
standards of ethics and corporate governance,” Nasscom said in a statement released on
Wednesday hours after Raju’s resignation news hit the street. “This is a stand-alone case of
failure of corporate governance and it is critical that it be viewed in this light.”

“What is happened is very sad, shocking, and truly unbelievable. I will hope the authorities in
India (act) pretty quickly, investigate it, and then punish the guilty,” chairman of Infosys N.R.
Narayana Murthy said.

“If the Securities Exchange Commission acts quickly and our authorities don’t, it won’t look good
on India. So, it is extremely important that authorities investigate and take appropriate action
before the US SEC. India would score few brownie points in the eyes of FIIs.”

Suresh Senapathy, executive director and chief financial officer of Wipro, sought to emphasize
that the Satyam development was an isolated incident.

“Wipro strongly condemns any attempt to mislead stakeholders. Global standards of corporate
transparency are very high and we are confident that this is an isolated case and not
representative of the IT industry. We think a detailed investigation of this incident is urgently
called for and needs to be undertaken by the authorities without delay.”

Industry lobby group Confederation of Indian Industry (CII) said in a statement on Wednesday
that Satyam development underscores the “need to immediately examine the loopholes in
regulation, accounting, audit and governance that allowed such lapses to occur and address
them with urgency.”

CII maintained that “it would be inappropriate for this to be the basis of questioning of general
governance standards in other companies.”

Sector-wide pain

Still, some experts and analysts said the Satyam incident would hurt other Indian companies,
especially those in the software and back office services space.

“If a company’s chairman himself says they built fictitious assets, who do you believe here? Not
only Satyam, this has put a question mark on the entire corporate governance system in India,”
said R.K. Gupta, managing director of the New Delhi-based Taurus Asset Management.

Avinash Vashista, chief executive of Tholons Inc., an offshore advisory firm, said that he was
surprised by the extent of revelations.

“The extend of fraud...will have a big impact on the IT Indian industry,” he said. “The only way
to manage this thing is for Sebi, Nasscom, investors of Satyam and work together to merge it
with a large IT firm; that needs to happen.”

Satyam employees Mint spoke to said they were “completely shocked” and “felt insecure” abut
their jobs. “We have received communication from the new chief executive, asking for our
commitment to reach out to customers and regain their confidence and trust in the company,”
said an employee who asked not to be named.
“We are hoping that a new management will be able to revive the company,” another employee
said.