Indian firm faces threat of breakup .hurriyet2008-detailbox-newslink { font-family: Arial, Helvetica, sans-serif; font-size:13px; font-weight:bold; text-decoration:none; color:#000000;} .hurriyet2008-detailbox-newslink:hover { font-family: Arial, Helvetica, sans-serif; font-size:13px; font-weight:bold; text-decoration:underline; color:#990000;} MUMBAI - Satyam Computer Services will have to restate earnings and may be broken up after the company’s founder was arrested in India’s biggest corporate fraud investigation, executives said.

Three new directors led by Housing Development Finance Corp. chairman Deepak Parekh met in Hyderabad yesterday to take over India’s fourth-largest software exporter after the government replaced its board and detained chairman Ramalinga Raju.

"First we need to go and assess the magnitude of the issue," Parekh, 64, said in a telephone interview. "Then we have to work on the re-statement of accounts."

Satyam climbed by a record in Mumbai trading on speculation that the new government-appointed board will draw up a rescue plan. Splitting Satyam may avoid an exodus of clients and shield potential buyers from lawsuits and regulatory probes.

"The way to salvage the business is to house it in another company and then sell it, there will be takers for it without the liabilities," said Rajendra Chitale, managing partner at M.P. Chitale & Associates, who worked with Parekh a decade ago on the rescue of India’s biggest mutual fund. "It will be like selling the family jewels and paying off the liabilities."

World Bank disclosure
Raju’s disclosure that he had padded accounts for several years came three weeks after he failed to push through the sale of family companies to Satyam and the World Bank disclosed an eight-year ban on contracts. Wipro shares yesterday slumped after the Washington-based institution said it was also barred 18 months ago, further undermining Indian corporate disclosure practices.

Raju, Satyam’s 54-year-old founder, his younger brother Rama and Chief Financial Officer Srinivas Vadlamani will seek bail on Jan. 16. They were remanded to judicial custody until Jan. 23.

The brothers were detained on charges including forgery, breach of trust and criminal conspiracy. Officials have seized documents and the nation’s accounting body is examining auditor PricewaterhouseCoopers’s local unit.