And now for the Great Satyam Whitewash/CoverUp/Public Subsidy! The wrong Minister appoints the wrong new Board who, probably, will choose the wrong policy

The old Satyam, call it Satyam-I, is dead.  It was a “Limited Liability” company which means its ordinary shareholders can walk away with zero value and not be personally liable to pay the creditors and preferred shareholders (who are and ought to be considered its new owners).  “Satyam” as a brand name, a logo and a trademark might be salvageable after a reconstitution in due course.

Besides physical plant, fixed assets and other similar tangible things, the main assets of Satyam-I consist of “works-in-progress”, namely all the existing ongoing contracts around the world.  What should happen is that all these contracts — while maintaining client confidentiality (e.g. by using generic terminology) — should be auctioned off to other similar IT companies, big or small.

Satyam-I’s existing technical staff associated with these ongoing contracts can go with them to the new buyers (with the new buyers negotiating individual wage contracts).

Alternatively, existing staff can offer to participate too in such auctions themselves as buyers and use their personal savings to buy off old Satyam contracts.

All the proceeds from such auctions should go to a trust fund that Satyam-I’s liquidator  should use to pay off  the creditors, or at least come to an agreement with creditors about a future structure of payments.  If assets have been siphoned off or misused or embezzled by the previous owners and management, then these need to be pursued and located and retrieved to the extent possible.  (Some reports say there has been some transmutation into real estate and some transfers abroad).

If all this happened, there might be a Satyam-II or New Satyam some years down the road which can use the same brand-name and logo and trademark comfortably again.

But not much of this seems likely to happen.  The best thing this Minister could have done was to have turned in his papers saying that the problem was beyond his intellectual capacity as he had never done a course in Corporate Finance.  Instead he has appointed three persons  whom he considers “eminent”.   One has been involved with the software lobby and another with the real estate business (and associated with the idea of using India’s forex reserves for “infrastructure”, not realizing  forex reserves are hardly like tax revenues).  As things stand presently, this Board, themselves unfamiliar with standard  modern textbook Corporate Finance, and far too close to the previous Board, is unlikely to take the right decisions because such decisions will require more intellectual and moral effort than may be forthcoming.

Instead they will probably lobby hard for a vast public subsidy to be injected into the financial corpse that is Satyam-I, so that a zombie company can attempt to be resurrected (we  in India have many such zombies walking around in the organised business sector).

The PM who is also now his own Finance Minister has, in his long career as a top economic bureaucrat and a politician, never met a public subsidy he did not like or approve of.   So watch out for a billion or two dollars of public money in India injected into the corpse, adding to India’s vast and growing public debt.  Parliament will hardly disapprove when the PM and his acolytes soon announce it in unison.

Ask yourself then how such a vast public subsidy can possibly benefit ordinary Indian people who live in, say, Imphal, Agartala, Ajmer,  Lalitpur or Balasore, or even Guntur and Telengana.   The answer is that it won’t — it will hurt them and their succeeding generations for decades.  Such has been the pattern of economic-policy making in India whether under this political party or that; it is organised lobbies, especially organized business as represented on this new Board, that call the shots. The relatively few people who can convert Indian rupees into forex do so with impunity while the vast unknowing masses continue to use a currency damaged by waste, fraud and abuse.

Jail terms for the Rajus and their friends?  Hmmmm.  Perhaps the few weeks or months that are due to wealthy criminals.

Somebody in Delhi yesterday apparently told the visiting Cambridge Vice Chancellor that Kolkata “does not count”;   to the contrary, it is New Delhi that remains entirely bankrupt intellectually and morally, and that bankruptcy will continue to be revealed in coping with Satyam’s bankruptcy.

Subroto Roy

Postcript:  The above was written and published here before the new Board’s press-meet.  Nothing the Board said has given reason to alter the opinion above.  Rather, the Board seemed exceptionally dull in failing to see that once the new accountants have done their work, it seems likely if not inevitable that Satyam’s balance-sheet calls for “winding up” in the Indian term, i.e. declaring bankruptcy.   The news that the Government of Inda would also likely subsidise Satyam with public resources also confirms the dismal state of economic policy-making described above. SR., 1830 hrs, Jan 12.


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