Tuesday, December 30, 2008

Should they junk SATYAM management?

The (A)SATYAM saga is getting messier by the day.

The issue has meandered around a lot of flaky bends. First it was the bid to diversify into real estate defying all norms of corporate governance by disregarding the need for shareholder approval before making a strategic business shift. Then came the relevance of independent directors on its Board, that remained passive to promoter Ramalinga Raju’s initiative to buy grossly overvalued family concerns. Almost all of them have since resigned. What followed was yet another rant on Raju’s wiliness – how could he pull off all this while his stake has dwindled close to nothing (all of his 8.6 % in SATYAM was pledged to institutions to raise funds to finance MAYTAS venture that lost almost 80% of its value in the recent real estate meltdown – the institutions have recalled the loans that Raju could not meet and they sold his entire stake in the open market last week as the story broke).

And the latest is, HP training its guns on SATYAM. Gartner studies say IBM leads the global IT services market with around 7.2% of the market, followed by HP-EDS with around 5.3% of the market. HP overtook second-placed Accenture after it acquired EDS earlier this year. The global market for computer services is estimated to be around $748 billion. Even after the EDS acquisition, through which HP gained over 20,000 employees of MphasiS, it trails both IBM and Accenture in terms of offshore strength. IBM has over 73,000 professionals in India and Accenture some 37,000.

And now a fresh debate. Should the existing management be allowed to continue given their track record of delivering consistent business growth? I too believe that a change could be harmful and are willing to give the existing operational team a chance. Had the management clearly realized its mistake and makes amends on the governance front, it’s better to run with the same bunch that ensures customer comfort and affirms durable relationships. It’s not easy to let go off clients GE, Qantas and regain their confidence in the short term for any new management.

Wednesday, December 24, 2008

SATYAM is up for grabs, pal

Ok. Enough is said about SATYAM COMPUTERS in the last one week. I come straight to the point. Dice begins to roll on who gets to buy SATYAM now that it is a sitting duck for a strategic investor / a PE raider. Want proof? Check out the huge volume of 90 million shares changing hands in the Indian stock exchanges (NSE and BSE) even as we still have a good 2 hours of trading left!!

I stuck my neck out and wanted a piece of action. Bought some SATYAM stock today. Here is some perspective on the India Offshoring scenario that I checked out before buying it. Feels good, buddy... the stock is already up by 5% from the price I bought...

So....I am already in-the-money :-) on my SATYAM buy of this morning. Aren't you too?

Monday, December 22, 2008

Art of getting independent directors to act

Why do independent directors discard independence? Protecting minority investors yield them nothing. That’s why.

If they dance with the founders/incumbent management, they get generous sitting fees, commissions, occasional foreign junkets, vacation homes and transport free for them and family. For ex-B School faculty and bureaucrats that deck up as independent directors (just to check the columns in the compliance sheets) these freeloads are incentive enough not to disturb the peace and quiet at Board Meetings.

Few have the courage to transcend political correctness (at Board level, read "Promoter Correctness") and strive for human righteousness. Character is doing the right thing when nobody's looking. There are too many people who think that the only thing that's right is to get by, and the only thing that's wrong is to get caught – like the independent directors in (A)SATYAM COMPUTERS recently realized. In the end, if you have integrity nothing else matters and if you don’t have it, nothing else matters as well. So why load up excess baggage?

To the regulators, I would say please don’t slap more laws. We have enough. Laws control the lesser man. Right conduct controls the greater one. Have the courage to blacklist independent directors when they fail. Deprive them of all their Board seats and disqualify them straightaway. Companies Act has provisions for disqualification of directors already. Go enforce them.
Or better still, let the minority shareholders pool in and give them freebies :-)

Wednesday, December 17, 2008

It's time SIEMENS relocate to India

Poor SIEMENS. It just got unlucky.

Too much is made out of a bribery scandal. What did it do after all? It ran a cash desk for its managers to draw money at will and offer kickbacks to get deals. Over time, they say it added up to $800 million or so. So what? Didn’t late Dhirubhai Ambani (and now his sons) build the Reliance empire by bribes? The Ministers do its bidding in the Parliament. They fight its war. Even as RIL (led by Mukesh Ambani) backtracks on its earlier agreement to sell gas to RNRL (led by feuding brother Anil Ambani) at concessional rates, Murli Deora, the Minister for Petroleum and Natural gas will force his bureaucrats to file an affidavit to help beef up the RIL case. The bureaucrats in the government where Reliance had something to do get two pay checks every month. A smaller one from the government and another one much larger from Ambani’s cronies. In return, they let Reliance import capital equipments at `NIL’ rate of duty by accepting its classification as `gift’ – yes, gift of an entire plant by an overseas supplier and more.

But that’s in India. In Europe and America they look down upon corruption. They won’t let companies get away with bribed deals. They are grilling SIEMENS and imposing massive penalties. But a Bernard Madoff type $50 billion ponzi schemes are allowed. Their investment banks are allowed to issue junk bonds that have little or no underlying asset that have the power to bring down their economies. [Hell the serial collapse of Wall Street banks looked like some Communist government issuing a “shutdown-or-else” diktat to free up pricey real estate – like they do in China pushing the poor people into hinterlands to make room for Olymipic stadium and other urban infrastructure. They let their auditors, credit rating agencies and regulators get away scot-free. Even Governors can sell senate seats and the courts don’t allow their removal.
Hypocrisy? Well, ok for lack of a better word.
I have some advice for beleaguered SIEMENS management – Relocate to India. You have all the right qualifications :-)

Tuesday, December 16, 2008


“Satyam” in Sanskrit and a host of Hindu Dravidian languages like (Tamil, Telugu, Kannada and Malayalam) means Truth / Honesty.

Asatyam” means just the opposite.

With the investor backlash over the attempted skullduggery by its management (with just 8% stake) to bailout the slumping Raju family group (Satyam founders) concerns MAYTAS Infrastructure and MAYTAS Properties (MAYTAS incidentally is SATYAM spelt reverse) for $1.6 billion (that's all the cash in its balance sheet!) and the subsequent calling off, there seems to be a good case for renaming the company as ASATYAM Computers. It’s not its first attempt by the minority management to oppress other minority shareholders. The group is known for its several dubious pursuits committed with impunity earlier.

Monday, December 15, 2008

Mortgage crisis, Madoff madness - so what comes next?

Agreed. Mortgage crisis was because of a complex web of sliced and diced mortgages that escaped instant scrutiny. But how about a ponzi scheme run by an ex-Nasdaq broker dealer?

As a broker-dealer, Mr. Madoff's firm was already heavily regulated, and news reports say the Securities and Exchange Commission investigated him in 1992 without finding anything wrong. The SEC said in a statement Friday that its New York staff also conducted inquiries into Mr. Madoff's firm in 2005 and 2007. Mr. Madoff's separate investment company registered with the SEC in 2006, which is all that hedge funds would have had to do under the SEC's proposed (but failed) hedge-fund rule of a few years back.

The recent spate of scams from the US has made this once famous financial innovation powerhouse a den of con artists and shoddy regulators. Alright how about foreigners that invested so much money?

Without this flow of easy money into the U.S., globalization in its current form would not have been possible. The U.S. was the consumer of last resort, absorbing cars from Germany and Japan, electronics from Taiwan and Korea, and clothes and furniture from China. The earth was flat, and why not? Pluck a laptop from Taiwan and pay for it with a home equity loan, which—if you trace back the connections—was at least partly funded with foreign money, too.

The big unanswered question, for years, was why this money flow persisted. Why the heck were foreign investors willing to lend the U.S. such large amounts of money on such good terms? Economists and journalists spun out hypothesis after hypothesis (we'll see more below), but there was no agreement on why.

What comes next? The fallacy is punctured. Globalization will be seen as what it is—a game with risks that can't be wished away. And U.S. prosperity will depend on the success or failure of its ability to innovate—not its ability to tell an implausible story to foreign investors.

Thursday, December 11, 2008

Breaking the back of Indian Realty

Readers of this blog may be wondering why there is a sudden slowdown in posts. Well the truth is there is not much worthy of finding a place here and I don’t post something that I don’t feel seriously about. Moreover, volatility in the stock market has given me little time to waste and make use of every available opportunity to make a quick buck. After all, it’s time we make some money now that the market has occasional rallies – bear market or not.

Now I find this. Realty prices in India could correct by over 30% - now this is it. This is when reality dawns on realty. How long could they hold back? Stock markets have given a thumb down to the sector, there is a credit crunch and bankers are loath to lend to real estate players. But these scums wouldn’t budge. Now it seems their back is breaking.

I am normally not a saddist. But as far as unreasonable realty sector is concerned, I’d gladly be one.

Saturday, December 06, 2008

Farewell Mr.Kamath and Welcome Ms.Kochhar

ICICI Bank finally nails down its succession plan. Outgoing CEO K.V.Kamath (who will now be its non-executive Chairman) is to be replaced by Ms.Chanda Kochhar, currently Joint MD & CFO.

Kamath has been instrumental in turning ICICI, the erstwhile public sector project finance outfit into a private sector full service commercial bank and then in hoisting it as India’s second largest bank (balance sheet size) until recently, when the impact of the bank’s overseas bond portfolio facing massive erosion triggered a run on the bank. Depositors panicked and pulled out deposits that almost eroded the bank’s substantial deposit base. Among Indian banks, ICICI Bank had one of the largest exposures to overseas assets. According to statements tabled in Parliament, ICICI Bank suffered mark-to-market losses of $264 million in the credit derivatives segment. The bank had about $2.2 billion worth of exposure to credit derivatives while the largest bank in the country, State Bank of India (SBI), has an exposure of about $1.1 billion. Though the bank has not directly invested in the US market, it has taken a beating due to the depreciation in value of securities witnessed in the global markets.

In comes Ms.Kochhar at a time when a collapse of the US sub-prime mortgage market and the reversal of the housing boom in other industrialized economies is having a ripple effect around the world. She is going to have a tough time ahead because she has to lift a troubled bank out of a mess created not just by itself, but the global financial world.

But if she is lucky enough to have the bailout and economic stimulus tailwind propelled by central banks and governments around the world, she has the caliber to see the bank through its crisis.

Let’s welcome her to the hotseat. And farewell Mr.Kamath !

Wednesday, December 03, 2008

See how they squeal

I was at the Reuters India Investment Summit last week. The usual suspects were in full attendance – Akhil Gupta of Blackstone, K.V.Kamat, ICICI Bank, Manisha Girotra of UBS besides some irregulars like Arun Shourie of BJP, Arvind Virmani the chief economic adviser to MoF, Suresh Senapati of Wipro, G.V.Prasad of Dr.Reddy’s etc.

Here is the report from ET. I tuned my ears to Akhil Gupta of Blackstone who wanted more policy freedom as it was facilitating “crooks” and not strategists. He found support from the investment fraternity as well. "The flow price rule is a stumbling block," said Vedika Bhandarkar, of JPMorgan. "In a falling market like India, if you have a six month rule you can't do a deal. That rule, we expect to be relaxed soon."

I allowed myself a smirk. Aren’t these the same guys that clamored for the rule to stay when prices were soaring? They enjoyed the flow price rule and were valuing on the basis of last 6 months average price and forcing company management to accept it because the regulations said so. Now when the prices have caved in, it hurts them. Now Akhil Gupta worries the rules favor a crook, while he goofed up on his choice of investment in Gokaldas exports and (Ushodaya enterprises that went see-saw) the like. Blackstone, Gupta’s employer is famous for big time goofing up. Remember their $36 billion acquisition of Equity Office Properties Trust from Sam Zell way back in Nov.2006 when mortgage prices were peaking? In less than a year, they realized their blunder and started stripping it off its priced assets. But its CEO Stephen Schwarzman smartly went public and cashed out before the serial guffaw took its toll on his personal holdings. And Gupta is squealing about crooks outside!