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Satyam Computers plans two-stage ADR issue

Satyam Computer Services Limited has set in motion a two-stage route leading to an American depository receipts issue.

T O D A Y

• Arun Jain interview • Wipro results • Navin.com • Satyam's ADR issues

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.

Stage two will issue ADRs towards the beginning of the next financial year.

Satyam's board took the decision at a meeting on Monday after considering options to eliminate debt and improve profit margins. The decision is in line with the approval obtained at the annual general meeting held on May 28, 1999.

"The funds raised through both the stages will be within the limits set by the enabling resolution adopted at the company's AGM held on May 28, 1999," a company statement noted.

It may be recalled that the AGM authorised the company "to issue securities either through ADRs or global depository receipts, through a private placement, convertible debentures, equity shares, secured premium notes, floating rate bonds and other type of securities to an amount not exceeding $150 million or 15 per cent of the paid-up share capital after the proposed bonus issue, whichever is higher."

Jardine Fleming India Securities Limited has been engaged as the financial advisor and placement agent for stage one of the capital raising exercise.

It is in the process of completing due diligence and will shortly finalise the details of the proposed issue. The company expects to complete its initial equity placement before the end of August 1999.

Commenting on the company's capital raising plans, Chairman B Ramalinga Raju said: "We have a stated goal of being a truly global IT solutions provider. Towards this end, we have taken several strategic decisions to accelerate our growth process. Our earlier investments have shown encouraging results, including our offsite software development centres established overseas."

Raju said "We are confident of achieving higher than projected results for the second half of the current financial year. The proposed equity capital raising exercise will make the company debt-free, improve net profit margins, provide resources to fund its future growth plans and enable the offer of US dollar stock options to its overseas employees.

Raju pointed out that "The retirement of the existing debt of the company will result in an interest savings amounting to over 6 per cent of the company's total revenues, thereby raising the net profit margin to about 26 per cent on an annualised basis. This also forms a part of the company's long-term financial strategy of being a debt-free company that aims to consistently raise the level of return on equity."

Company officials explained that the Satyam Computer Services would go in for equity placement to raise funds for retiring its debt of Rupees 2.676 billion.

The amount to be raised will be finalised soon. The company's debt as on June 30, 1999, comprised secured loans of Rs 2.601 billion and unsecured loans of Rs 75 million.

The strategy is to perk up the EPS and the P/E ratio by retiring the debt. The equity placement will be effected either by private placement, preferential allotment or investment by domestic and foreign financial institutions.

A final decision on this will be taken soon. The company posted sales of Rs 1.2092 billion for the first quarter ended June 30, 1999, with net profit of Rs 233.5 million.

The company's paid-up equity share capital amounted to Rs 260.2 million and its reserves and surplus stood at Rs 1,642.4 million for the same quarter.

The company statement explained "The decision to enhance the equity comes in the background of the company's strong operational performance in the last six months during which it added 41 new customers, achieved SEI-CMM level 5 assessment and enhanced its non-legacy business."

The company's market capitalisation stands at $1 billion. Its scrip soared to Rs 1,581.90 at the Bombay Stock Exchange on Monday. The volume of business turnover in the scrip was Rs 3,968.7 million.

Satyam Computer Services Limited will be the second Indian IT company to tap the US market with an ADR issue. The company has four offsite development centres in the United States.

The company's focus on providing repeatable solutions in new technology areas is showing results. Post Y2K project teams are being successfully deployed in areas such as Web enabling and e-commerce applications, embedded software and telecom applications.

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