Mahindra Satyam, formerly Satyam Computer Services, will delist from the New York Stock Exchange, or NYSE, after realising that it cannot meet the October 15 deadline for preparing financial statements under US accounting standards.
The news triggered a massive 26% fall in its ADRs on Friday. The domestic shares fell 6%. “Due to the late SEC filings, which are among the unfortunate results of the misdeeds of former management, we are delisting from the NYSE,” said Vineet Nayyar, chairman, Mahindra Satyam.
The company said it intends to file a Form 25, or notification of removal from listing, with the US regulator, Securities and Exchange Commission or SEC, around October 4, and anticipates the ADRs to be delisted from the NYSE on or close to October 14.
Satyam Computer Services’ promoter, Ramalinga Raju, confessed to hiding liabilities and overstating profits for many years in January 2009, a revelation that stunned investors, India Inc, the government and all regulatory agencies.
He was subsequently arrested and jailed. The government superseded the board of Satyam with its own nominees and then arranged a sale to Tech Mahindra, the IT services arm of the Mahindra & Mahindra Group.
The problems with Satyam’s financial accounts meant that the company did not publish its financial results for 2008-09 and 2009-10. The last date for publishing results for these two years under US accounting standards, or US GAAP, is October 15, according to SEC rules. On Tuesday, the company said it would publish results under Indian GAAP, but remained silent on the US GAAP numbers.
Friday’s delisting announcement is a clear indication that the company will not be able to adhere to American accounting standards in such a short time-frame.
But experts say that delisting will not solve the company’s problems.
“Under the US GAAP standards, the company will have to actually re-state the numbers for all the years for which they were incorrect,” said an auditor, specialising in US GAAP, with an accounting firm.
This means that Mahindra Satyam will have to restate the accounts for all the seven years when the accounts were falsified, or from 2001, when it listed on NYSE.
There is no such requirement under Indian GAAP. “Whatever relates to the prior years would be reflected in the opening balance of retained earnings as on April 1, 2008,” another auditor with an accounting firm said.
Delisting gives the company an opportunity to prepare accounts for all the prior years, though Tech Mahindra has remained silent on whether it is doing such a thing.
Private equity investors and experts ET spoke to said lack of restated accounts for the prior years would not be a major hurdle for any stake sale in the company. However, it would impact potential investors to that extent that they would not have any historical data about the company’s performance.
“The lack of historical information means that there would also be a question mark over the forward financials. The forward financials are projected based on historical financial data, which gives information about how the company progressed over the years,” said one expert, requesting anonymity.