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No government bail out for Satyam

Indian government will not provide funds to support Satyam

The Indian government has ruled out providing a bail out package for services giant Satyam, amid reports that the company is firing staff to save money.

On Thursday, the Economic Affairs Secretary Ashok Chawla told reporters that: “The government at this stage is not looking at any direct support or bailout to the company.”

His statement was echoed by Corporate Affairs Minister, Premchand Gupta, who said that Satyam had not sought government aid, and that the new board would seek to raise cash from banks instead.

Kiran Karnik, one of the three new Satyam board members, also ruled out accepting government funding, saying this would send the wrong message about the company’s financial viability.

Some media had reported that Satyam was laying off staff to save money, but the company denied this.

Hansa Krishnamurthy Iyengar, an analyst at Ovum, wrote: “The financial situation at Satyam is indeed dire, with inside sources confirming that the company lacks sufficient working capital to meet current expenses and employee salaries for this month.”

In a separate note, Iyengar said that the “first challenge [for the new board is] to find a bank willing to risk supplying the necessary working capital to keep the business running.”

He added: “The best approach for Satyam at this juncture would be a takeover, as the company does not have the resources to function independently. It is also likely that the business could be broken up into parts and each sold separately.”

Iyengar pointed to Indian vendor, L&T Infotech, which he said has lagged behind in IT services, which might be a good buyer for Satyam. L&T subsidiary L&T Capital also acquired a 4% stake in Satyam shortly before the irregularities came to light. L&T management said it would continue to watch Satyam, but would not do anything until the real extent of Satyam’s liabilities was known.

On Wednesday, Price Waterhouse, Satyam’s auditors announced that its audit reports for Satyam from June 2000 until the quarter ended 30th September, 2008 could no longer be relied upon. Until the accounts can be restated, a process that could take months, analysts believe that banks or possible buyers will be deterred from investing in Satyam.

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