The board of directors of Satyam Computer Services Ltd.
decided to expand the equity base of the company through a two-stage route leading to an
ADR (American Depository Receipts) issue.
The initial stage covers the proposal to raise funds
through an equity placement, the proceeds of which will be primarily used to retire all
debt on the company's balance sheet. The second stage will be the issue of
ADRs, to be
listed in the US towards the beginning of the next financial year.
Jardine Fleming India Securities Ltd. has been engaged as
the financial advisor and placement agent for the first stage of the capital raising
exercise. It is in the process of completing due diligence and will shortly finalize the
details of the proposed issue. The company expects to complete its initial equity
placement by next month.
The decision was taken by the board after considering
various options to eliminate debt, improve profit margins and provide resources to fund
its future growth plans and enable the offer of US stock options to its overseas
employees. The funds raised through both the stages will be within the limits sets by the
enabling resolution passed at the company's AGM. The company previously used debts as a
mean to fund its capital expenditure plans and to build a solid foundation for achieving
sustainable growth. The decision was taken in pursuance at the AGM held on May 28, 1999.
The retirement of the existing debt will result in interest
savings that amount to over 6 per cent of the company's total revenues thereby raising the
net profit margin to about 26 per cent on an annualized basis. This also forms a part of
the company's long-term financial strategy of being debt-free that aims to consistently
raise the level of return on equity.
The company's focus on providing repeatable solutions in
new technology areas are showing results. Post Y2K project teams are being successfully
redeployed in areas such as web enabling and e-commerce applications, embedded software
and telecom applications.
The company has, as a preparatory move decided to merge
three of its subsidiaries Satyam Enterprise Solutions Ltd., Renaissance Consulting Ltd.,
and Satyam Spark Solutions with the company and the amalgamation has been approved by the
High Court of Judicature at Hyderabad. It may be recalled that Satyam
Infoway, a
subsidiary of Satyam Computer, has already received FIPB clearance for an ADR issue and is
in the process of completing formalities for US listing in the near future.