IT firm Satyam’s £1bn fraud ‘India’s Enron’

European customers of India's Satyam, including Unilever and London-listed news giant Thomson Reuters, were this morning struggling to work out how the potential collapse of fraud-hit Indian IT Services giant Satyam would affect their operations.

Satyam's customers include steel giant ArcelorMittal, Nestlé and the world football body FIFA.

The future of Satyam, a major player in outsourcing work from western companies, is in doubt after founder Ramalinga Raju admitted a $1 billion (£665m) accounting fraud, described by one analyst as "India's Enron". Satyam's shares fell 78 per cent yesterday after Raju wrote to his board and the stock exchanges detailing how he inflated profits "for several years" until it was like "riding a tiger, not knowing how to get off without being eaten."

British investors, including Prudential, are nursing huge losses on their holdings. Aberdeen Asset Management, which a year ago was Satyam's biggest shareholder with a 9.2% stake, today said it no longer owned any shares.

Analysts said investors faced a possible total wipeout of share values.

"I think the company will cease to exist," said Viju George, IT analyst at Mumbai's Edelweiss Securities.

Global outsourcing consultancy Forrester Research said 50 per cent of Satyam's clients could desert it in a few months. Satyam's 53,000 employees are flooding job sites to find new work.

ArcelorMittal's ties with Satyam go back nearly five years. It has an ArcelorMittal "centre of excellence" by its Hyderabad HQ. FIFA made Satyam its official IT partner and uses it for network and web infrastructure. Reuters has worked with Satyam for eight years. In October 2007, it sealed a 10-year deal with Satyam and Fujitsu for desktop support' to employees.

A FIFA spokesman said it is monitoring the situation. ArcelorMittal and Thomson Reuters did not comment.

The fraud began to unravel last month when shareholders blocked Satyam's $1.6bn takeover of Maytas Properties and Maytas Infrastructure, both promoted by Raju's sons, at what looked like inflated prices.

Indian IT outsourcing firms like Wipro, Infosys, and Tech Mahindra are set to balk at taking over Satyam's assets and operations after Raju said Satyam had margins of 3%, not 24%.