Satyam scandal highlights emerging market risks

By Paritosh Bansal

NEW YORK (Reuters) - A vast accounting scandal at India's Satyam Computer Services may increase investor nervousness about weak corporate governance and oversight in emerging markets.

Satyam founder and chairman Ramalinga Raju admitted on Wednesday to inflating Satyam's reported cash and bank balances by over 50 billion rupees (674 million pounds), but little is known about how widespread the problem is and things could get worse if other frauds are uncovered.

The scandal, which is being dubbed by some analysts as "India's Enron" and compared to Bernard Madoff's alleged $50 billion (34 billion pound) Ponzi scheme in the United States, comes at a bad time for emerging markets.

Benchmark emerging equities .MSCIEF are down 52 percent since the beginning of 2008 as investors fled risk and hopes of a "decoupling" from a slowdown in developed markets proved mostly unfounded.

"It's got to shake confidence. And it is compounded in my mind by what I already call the fear complex that exists around all global markets," said Lesley Hand, a partner in accounting firm KPMG LLP's forensic practice.

"The thing you don't know here is how far reaching this is," Hand said. "I don't know if it will be long, long-term. But you let another shoe or two drop and I would say it would be way worse."

Raju's revelation came after days of turbulence at the Indian outsourcing company that began with a botched attempt by Satyam to buy two infrastructure companies in which management held stakes.

Satyam's shares fell nearly 80 percent in India and dragged down Bombay's main benchmark index 7.3 percent.