Satyam to wind up American Depository Shares next year

After putting up a brave front for several quarters on its US listing, Satyam Computer Services has finally given up the idea of becoming SEC compliant. The company has decided to wind up its American Depository Shares (ADSs). This means the company would completely withdraw from the US bourses, including the OTC platform on which it is currently traded.

“We have decided that it is not possible for the company to become current as per the US SEC (Securities and Exchange Commission) regulations. There were certain data that were not available to the company following the fraud committed by the earlier management.

The non-availability of those numbers was pointed out by the auditors while auditing the financials. Though the Indian regulator was accepting the auditors’ comments, the US regulator was not. So we have decided to wind down the ADS programme,” Vineet Nayyar, Satyam’s chairman, said.

Nayyar was pointing at a set of numbers that were qualified by the auditors during the recent review of the accounts including the alleged investment of about Rs1,232 crore made by the founder of Satyam B Ramalinga Raju.

Satyam has not been able to file the required documents with the SEC post September 2008 due to the financial irregularities identified for earlier years. Nayyar also claimed that the SEC officials were willing to work with the company to set the records straight. However, the company has found that it would not be able to comply with the regulations of the SEC.

The ADSs in the US currently represent about 9.13% of the equity. As per the terms of the winding of the ADS programme, the company would first distribute notices to the ADS holders within the next week. There would be a transition period of about six to eight months during which the ADS holders would surrender their ADSs to the depository - Citibank - in the US. The ADSs will be eligible for underlying equity shares on conversion.

Since the company’s shares would continue to trade on the BSE and NSE, the shares thus converted will become eligible for trading on the Indian bourses. The ADS holders post the conversion of their receipts into equity shares can sell their shares in India and take their money back.  On completion of the process, the company will no longer be obliged to file reports with the SEC and that trading in the company’s securities in the US will be halted.

“This will not have any impact on the company’s business in the US or the trading of the shares in India,” Nayyar said.
However, analysts held that the release of equity shares of over 9% into the open market would increase the float thereby affecting the price of the shares on the Indian bourses. But Nayyar said, “We are doing this unwinding in an orderly way so that the markets absorb the shares coming for sale.”

Satyam had settled the lawsuits filed by the American shareholders after Ramalinga Raju confessed to the accounting fraud committed on the company in January 2009. Sources said that the unwinding would insulate the company from any future lawsuits filed by the shareholders apart from paving the way for merging Satyam and Tech Mahindra.

“As long as it is registered with the SEC, it becomes imminent for the company to get the SEC nod too for the merger. The revocation of registration would make the future merger hassle free,” a source tracking the company said.