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How to value Satyam's risks?

Mar 17, 2009

Valuing Satyam's risks is a challenge
Satyam may be looking for a strategic investor to bolster the fortunes of the battered company, but the million dollar question is how does the potential buyer value its highly questionable financials? Undoubtedly, the price at current levels is attractive and if a stake is to be acquired in the scandal-hit company, now would be the time to do it. Companies such as L&T, Tech Mahindra and the Spice Group have evinced interest in the same. However, at the same time, such an acquisition would be of a long term nature as a result of which getting a proper sense of the finances would be of paramount importance. Hence, these potential suitors definitely have a tough decision on their hands. One thing is certain; the risk associated with the company is considerable even if its price is low. Tata Group's debt soars
It appears that Tata Group's total debt is set to exceed Rs 1 trillion at the end of FY09 as per a report published in a leading business daily. Out of this, Rs 117 bn is due through March 2010. The five main entities of the Tata Group are Tata Motors, Tata Steel, TCS, Tata Power and Tata Communications and the combined debt accounts for 90% of the group's revenues. Aggressive capex plans and big ticket acquisitions led to a considerable amount of debt to be loaded onto the books of these companies. Of course, these group companies also have the ability to generate sufficient cash flow which would make the debt levels manageable. But the report further adds that in FY10, while the companies would generate cash flows to the tune of Rs 100 bn, around Rs 117 bn worth of debt is due. Out of these companies, most of the debt due in FY10 belongs to Tata Motors, which purchased the expensive brands Jaguar and Land Rover. While it is perceived that the Tatas will still manage to weather the storm, in the event that the global environment deteriorates further, steps such as restructuring of companies and asset sales probably cannot be ruled out entirely.

Tackling the water crisis globally
The world right now is entirely consumed with the global financial crisis, which has created havoc in the economies of various countries. But there appears to be a bigger crisis in the making. The United Nations (UN) warned last week that nearly half of the world's people will be living in areas of acute water shortage by 2030. These are stark numbers indeed. This is probably why ministers from 120 countries will be meeting in March to discuss issues such as averting a global water crisis and easing tensions between nations embroiled in disputes over rivers, lakes and glaciers. This issue has become all the more pressing given that population and living standards going forward are expected to rise. Incidentally, the current financial crisis is likely to hit large-scale water infrastructure projects as well. Nevertheless, if countries begin to take smaller steps to start with, a big disaster in the foreseeable future could still be avoided.

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