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Satyam may sell minority stake in US arm

Bipin Chandran

Satyam Computer Services Ltd, which recently got listed on the NYSE, is weighing the option of selling a minority stake in its fully owned US software subsidiary, VCI, to third-party strategic and financial investors.

According to the company's American depository filings with the Securities and Exchange Commission of the US, this is part of a strategy to limit Satyam's capital investment in VCI, which has incurred losses to the tune of $21.5 million.

Satyam Computers, which raised about $140 million through the ADR, has also pointed out that if it is unable to obtain additional third-party financing, it will internally fund future expenditures.

"We anticipate that our cash investment in VCI for fiscal 2002 will not exceed $4 million," Satyam said in its ADR filing.

The company, as of December 31, 2000, has invested $19.5 million in VCI, which is much higher than the $6.5 million investment as equity and other advances it has made in Satyam Infoway, the Indian ISP subsidiary. A significant proportion of the losses incurred by VCI- about $5.9 million- has been described by the company "as software development expenses for services by Satyam Computer Services."

In fiscal 2000, the operating expenses of VCI, amounting to $2.5 million, has been attributed to VCI's purchase of intellectual property rights from Satyam Computer Services for VisionCompass, a product developed by VCI. According to the ADR filings, VCI is currently building its sales and marketing team and has generated no revenues so far.

Pointing out that VCI and Satyam Infoway may continue to make losses and have negative cash flows, Satyam has stated, " We cannot assure you that the operating losses or negative cash flows of Infoway and VCI will not continue or increase in the future or that Infoway and VCI will become profitable."

Satyam Computer owns 52.5 per cent of Satyam Infoway and 100 per cent of the equity shares of VCI. During fiscal 2000 and the nine-months ended December 31, 2000, Satyam Computers has lost approximately $6.9 million and $29.4 million, respectively on a combined basis on VCI and Satyam Infoway.

The company has also reserved up to 10 per cent of the ADRs to be allocated on a priority basis to the directors, officers, employees and their relatives and customers of the company and its subsidiaries.

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