Grounded

The last project bagged by Maytas Infra, the projects company of the scandal-tainted Raju family, was a Rs 110-crore order from Southern Railways. The project was announced on January 6, a day before B. Ramalinga Raju sent out his letter to the board of Satyam Computer Services, confessing to an accounting fraud. With Raju in jail, investigations into the accounting fraud and fund diversion in full swing and Satyam up for sale, it’s understandable why Maytas, with a name that’s Satyam in reverse and promoted by the same family, is unable to bag new orders.

What’s not understandable is how Raju’s sons continue to be at the helm of Maytas Infra and Maytas Properties. While B. Teja Raju, 30, is running the day-today operations at the former, along with a CFO and 8-10 group heads, B. Rama Raju Junior, 28, is leading the day-to-day operations at the latter. 

The charitable would argue that until charges of fund diversion— either to or from the Maytas firms —are proved, the junior Rajus should be left to their own devices. Yet, the biggest reason why Maytas Infra can’t get a move on is that no promoter in his senses would want to award a project to a scandal-scarred business group. Even the bravest banker will think a hundred times before lending to such a company, especially in the current scenario when they are bound to be even more selective. Net result: Maytas doesn’t get new projects, it loses a few it had bagged before Raju’s high-jinks at Satyam came to light and the company runs the real threat of going the Satyam way.

So, should Maytas just be allowed to be, and eventually be acquired by a stronger player, a la Satyam? “While going the Satyam way may be ideal for Maytas, it is not going to be easy for the company to take this route,” says Jayesh Desai, Partner (Transaction Advisory Services), Ernst & Young India. Reasons: The first is the difference between IT services and construction. Software has a diversified international market, whereas construction is still confined to India. Also, as Desai adds: “At the end of the day, in the IT world, players still see cash on the balance sheet, whereas in infrastructure, companies are struggling for cash.”

What’s more, Desai points out that private equity and venture capital firms—non-strategic players— aren’t keen to buy into the construction sector. And, lastly, even if there is somebody keen on construction, they would prefer to keep away from Maytas Infra because of the break in business continuity, what with the company being unable to bag new projects. However, a company spokesperson says: “We are actively bidding for new projects.”

The task for the governmentappointed directors is to ensure business continuity. “There are certain projects where equity is required and we are working it out. We are working on strategies and are talking to bankers and they are quite sympathetic to the issue,” says Ved Jain, one of the governmentappointed directors on the board of Maytas Infra. Jain was till recently President of the Institute of Chartered Accounts of India (ICAI).

Maytas Infra has four government-appointed directors on its board in addition to the two from within (B. Teja Raju and B. Narasimha Rao). Is this a sustainable situation, and should the junior Raju be allowed to go on? “We have to view him independently,” says O.P. Vaish, a senior advocate appointed by the government on the board, although he does concede: “There is a credibility gap that has arisen.”

The board is believed to be considering options of getting advisers or probably a COO to run the business, just as in the case of Satyam, which has Homi Khusrokhan, a former MD at Tata Chemicals, and Partho S. Datta, a former Director (Finance) at the Murugappa Group, as advisors. Other than Jain and Vaish, the government has also appointed K. Ramalingam, a former Chairman of the Airports Authority of India, and Anil K. Agarwal, a past president of industry body ASSOCHAM, on the board.

Can these men work some magic at Maytas? Jain acknowledges the problems at hand. “Going against the company are factors like its tainted credibility, the credit squeeze, a decline in the real estate and infrastructure markets and the global meltdown.” But he’s counting on the company’s strong order book to see it through. Maytas Infra, says Jain, has a healthy order book— of around Rs 8,000 crore, excluding a controversial Rs 12,000 crore Hyderabad Metro Rail project. For good measure, it also has 1,800 people.

The worry, however, is that pages of that order book are flying out rapidly. For instance, Mumbai-based real estate developer, the Hiranandani Group, has cancelled a sub-contract awarded to Maytas Infra for an integrated mega-township in Chennai; the project is valued at Rs 398 crore. Then, Vedanta Aluminium also terminated its project for developing an integrated township for their staff at Jharsuguda, Orissa. The project was to fetch Maytas Rs 232 crore. Jain, however, points out that it is normal to lose a few orders during an economic slowdown. He adds that most projects in the company’s order book are from the government, which, despite a slowdown, will continue to show progress.

Jain is also on the board of Maytas Properties. Company insiders say operations of the cashstrapped company have significantly slowed down. Jain says efforts are on to get things started. “Plans are being worked out to deal with the liquidity situation. There may be delays, but we are confident that the company will be able to meet its commitments,” he says. It isn’t known whether investors in some of Maytas Properties’ projects share that optimism.

The ones that slipped away
Maytas Infra has lost projects worth Rs 1,263 crore in the recent past.

Projects	Project Cost (Rs crore)
Construction of residential township in Jharsuguda, Orissa, for the Vedanta Group	232
Sub-contract for integrated township in Chennai for the Hiranandani Group	398
Commercial shopping mall & cineplex in Lucknow	50
Railway tunnels in Assam	70
Coal-based power plant in Usegaon, Nagpur	476
Construction work for IIT Madras	37