HYDERABAD, India, Jan 9 (Reuters) - The stand-in chief of Satyam Computer Services (SATY.BO) says the Indian outsourcing company faces a crisis of unimaginable proportions after it was revealed that profits had been falsely inflated for years.
Satyam's board meets on Saturday to consider various options to tackle the crisis.
It is not clear if chairman and founder Ramalinga Raju, who disclosed the fraud in a resignation letter on Wednesday, or his brother B. Rama Raju, Satyam's managing director, who also resigned, will be at the meeting. That would leave just three men -- interim CEO Ram Mynampati and two independent directors. Four other directors have quit recently.
Following are some possible outcomes from the board meeting.
STRENGTHENING BOARD, TOP MANAGEMENT
Four independent directors have resigned from Satyam's board after a botched attempt by the company, also listed in New York, to buy two infrastructure firms in which management held stakes. Raju said he would continue as chairman until the board had been strengthened. Satyam is seeking board candidates from among regulatory bodies and industry associations. What's left of the board must decide what to do with the chief financial officer, who has also tendered his resignation. It may appoint Mynampati as CEO, or announce a search for a new chief to restore lost credibility. "The key to such survival is the level of confidence new management can inspire in customers as well as employees," Macquarie Research said in a research note. LIQUIDITY
Mynampati said on Thursday the Hyderabad-based outsourcer's liquidity situation was "not very encouraging now". Satyam needs to explore options to improve liquidity so it can pay its 53,000 staff around the world and continue operating. Raju said about $1 billion, or 94 percent of the cash and bank balances on Satyam's books at end-September did not exist. The board may hire a new investment bank to explore strategic alternatives for the company. Merrill Lynch MER.N, brought in as adviser last month, walked away this week, saying it found material accounting irregularities.
GETTING INVESTOR ON BOARD
The board is expected to approve a proposal to look at bringing a strategic or financial investor into the company, but analysts say there is little prospect of Satyam being taken over in the near future given the scope of the scandal and potential for big legal losses. ABN AMRO analysts have said Satyam's cash position is "precarious".
APPOINTING AUDIT COMPANY
The board may appoint an independent audit company to look into Raju's disclosure of financial fraud and to establish the company's cash position and bank balances. Mynampati said he was shocked by what Raju had revealed, saying he and the board relied on audited results. Auditor PricewaterhouseCoopers [PWC.UL] said its audit was carried out in accordance with standards and it would cooperate with regulators. The board may set a date to announce October-December quarter results, although Mynampati has admitted that previous forecasts have become irrelevant. Local market rules stipulate the quarterly numbers should be released by end-January
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