INDIA reeled in shock on Wednesday as the head of one of its biggest software services company quit after admitting that its books had been cooked for the past several years to show larger profits.

The biggest corporate scandal here in recent memory also raises doubts about India's corporate governance and threatens future foreign investment inflows.

Mr Raju wrote to the stock exchanges and to the securities regulator accepting sole responsibility for the fraud, which amounts to mis-stating more than US$1 billion (S$1.47 billion) of profits.

He admitted that Satyam, which has 185 clients on the Fortune 500 list, had a balance sheet stuffed with 'fictitious' assets and 'non-existent' cash.

The Hyderabad-based Satyam is India's fourth biggest software exporter, counts as its clients big names such as Nestle and General Electric and has nearly 53,000 employees in the world, including Singapore, Malaysia and China.

In an unprecedented show of contrition, Mr Raju said he had tried to conceal the gaps and to plug them, including by attempting to inject the assets of two real estate companies linked to his family.

However that bid failed last month under shareholder pressure. 'Every attempt made to eliminate the gap failed,' said Mr Raju, who insisted that neither he nor his family had profited a rupee from the wrongdoing. 'I am now prepared to subject myself to the laws of the land and to face the consequences.'

The government's company affairs department immediately said it will probe the matter. Almost certainly, the role of the auditor, PriceWaterhouseCoopers, will also come under scrutiny. PWC said it will issue a statement later.

Satyam, which operates in more than 40 countries, has the largest presence in Singapore among Indian software companies. It employs some 500 people and clients include the Government and various statutory boards.

Mr Virender Aggarwal, the firm's head for Asia Pacific, Middle East and Africa, said the scandal would not affect operations in Singapore: 'Singapore is not only an important market for us but also serves as our regional HQ and a critical pillar of our global delivery model.'

Satyam's managing director B. Rama Raju, the chairman's younger brother, has also quit and the company has been handed to professional managers.

Satyam has suffered a series of setbacks recently. In September, the World Bank suspended it from doing business with it for eight years, citing improper handouts given to bank employees to win contracts. Last month, it faced an exodus of many of its independent directors.

The Satyam bombshell could not come at a worse time for India. News of the biggest accounting fraud by an Indian company is likely to reinforce poor sentiment that has already led to a drain of US$13 billion from its stock markets last year.

India has also yet to recover from the November terror strike on Mumbai, its financial capital. Tourist arrivals have dropped and investors are leery about country risk. On top of that, the global financial crisis has hit the country hard.

Analyst Harit Shah of Angel Broking in Mumbai compared the Satyam case to Enron, the huge scandal that sent the US energy company to the ropes. 'Apart from the immediate impact, this is likely to have...repercussions in terms of the global perceptions of Indian companies and confidence in Indian markets,' he said.

Still, the top three Indian IT companies said they expected little fallout.

'Many of our customers have very old relationships with us,' a top executive at a Big Three firm told The Straits Times last night. 'We think this will draw more clients to us.' Even so, he said, Satyam had come as a shock to the industry 'because it had a star-studded board'.

velloor@sph.com.sg

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