Satyam chief quits, says profits inflated

By Sumeet Chatterjee

BANGALORE (Reuters) - The head of embattled Satyam Computer Services resigned on Wednesday and said the firm's profits had been inflated, sending the stock down more than 80 percent and roiling investor confidence.

India's biggest corporate scandal in memory threatens future foreign investment flows into Asia's third-largest economy and casts a cloud over growth in its once-booming outsourcing sector.

Ramalinga Raju, founder and chairman of Satyam, India's fourth-largest outsourcer, said in a statement the company's profits had been inflated over recent years but no other board member had been aware of the financial irregularities.

"The gap in the balance sheet has arisen purely on account of inflated profits over a period of the last several years," Raju said, adding he was prepared to face up to the legal consequences.

The shocking revelation came after Satyam's botched attempt last month to buy two construction firms partly-owned by the company's founders and as the World Bank, a major customer, barred Satyam from new business, citing "improper benefits" given to Bank officials. Satyam has demanded those comments be retracted.

The company's value has slumped to little more than $500 million from around $7 billion as recently as last June.

"I think there is no future for this stock. This case for India is similar to what happened to Enron in the U.S.," said Jigar Shah, senior vice-president at Kim Eng Securities.

"It will not stop at Satyam. Many more companies will come into scrutiny like that. There is a strong possibility investments in India will be affected."