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V. Rishi Kumar
Vinay Kamath

Months of speculation on who would invest in Satyam Infoway ended last week when Satyam Computers announced new strategic investors for the Internet services provider. With fresh cash infusion and a new spring in its step, Sify says it is now time to accelerate its business. V. Rishi Kumar and Vinay Kamath report on the twists and turns in the Sify saga.

IT WAS a visibly relieved Mr B. Ramalinga Raju, Chairman of Satyam Computer Services Ltd, who addressed eager media persons on October 4 in Hyderabad. Relieved that he would no longer have to fend off more speculative questions on who would finally take Satyam's stake in its loss-making subsidiary, Internet player Satyam Infoway (Sify). His announcement that Softbank Asia Infastructure Fund and Venture Tech Solutions would infuse $20 million in Sify in the form of fresh equity set to rest the rumour mills, bristling as they were with names of a host of suitors ranging from Reliance and Tatas to the Hindujas. Says Mr Raju: "This achievement of bringing in strategic players brings in a sense of relief that we were able to accomplish the task of divestment of Satyam's stake. This has been a well-thought-out strategic initiative to dilute our stake in Sify and emerge as a pure software services player."

Indeed, the wheel of fortune has turned a full circle for Satyam Computer Services Ltd, the fourth largest end-to-end software services provider in the country. From the time Satyam Computers created Sify as its wholly-owned subsidiary, following it up with Sify's launch as the first private ISP (Internet service provider) in the country in 1998, it has traversed a long and arduous path.

At a time when Sify was created, it was thought that Internet-related businesses were the way forward. But the dotcom bubble burst left a rubble, necessitating several mid-course corrections for Satyam. Following these changes, the software services unit of Sify was carefully and strategically picked up by Satyam. The idea was to make each of them more focussed players in their respective fields — Satyam in software services and Sify in the Internet space. The latter even coined a tag line, `Making the Internet work for you', to define its core competence. But what was thought to be a simple task turned out to be a challenging one for one of the most high profile IT companies in the country. Potential investors were queuing up, all right, but no one was biting. Right from AOL, the Government of Singapore Investment Corporation Ltd (GSICL), SingTel, Reliance Infocom, Tatas, Hindujas and so on, were suitors for Sify. But for Satyam, the price was just not right.

With potential investors coming — and going — through a revolving door, as it were, it gave ground for rampant speculation. Efforts by the media to seek information from Satyam on the sale of its Sify stake drew a blank.

When asked to comment on this, Mr Raju, while announcing the Softbank and Venture Tech move to invest in Sify's equity, said that more than 50 per cent of the information that was making the rounds over the past many months, did not have any truth. "It would be better to leave this behind us. But the fact remains that it has been an extremely engaging assignment for us as it was aimed at enhancing the shareholders' value.

A significant number of manhours of the top brass in the company was deployed across the globe to pick up the right strategic partner. In the end, it gives us immense satisfaction that we were able to add value through this strategic investment," elaborated Mr Raju.

For Satyam Computers, which has made swift strides to become one of the largest software services provider, the bleeding subsidiary had impacted its image and also dented its consolidated accounts. This undoubtedly was playing on the minds of the Satyam promoters. Having decided to divest its stake, they ran into a phase where the industry went through the worst-ever cycle after a decade of high. This made the task of finding a right suitor and investor an even more challenging one.

With this development, Mr Raju said that by December 2002 the entire task of divestment of stake to both Softbank Asia Infrastructure Fund and Venture Tech will be complete and Sify will cease to be a subsidiary of Satyam. The accounts of both the companies would be reflected separately. As Mr Raju emphasised, Satyam's consolidated accounts would no longer reflect the performance of its "bleeding subsidiary". Even though the company still has $70 million or Rs 350 crore in reserves and premium, it has burnt up cash of Rs 200 crore. The $20 million that Softbank Asia brings in as a strategic investor will go a long way in spearheading Sify's initiatives again (see allied story).

But one area that will always be debated and continue to be discussed will be Sify's investment of Rs 499 crore to acquire IndiaWorld. In retrospect, was this investment worth it? For instance, when Mr Raju was confronted with this question on previous occasions, he maintained that this had, in fact, added to the company's valuation and also helped raise funds from the global markets.

Sify, which commands over six lakh retail subscribers, has an Internet backbone that reaches 53 points of presence in India, representing an estimated 90 per cent personal computer base in the country. However, a significant part of its revenues are derived from corporate services, which encompasses corporate connectivity, network and communications solutions, security, network management services and hosting. In fact, the new investors could well be looking at Sify's enterprise solutions, which contributes more than 50 per cent of Sify's revenues, as offering better returns than its home Internet access and I-ways, its Internet cafes business. The former business is a profitable one, but not so the latter, though Sify officials say that even the latter business should be close to breakeven.

With Softbank Asia Infrastructure Fund, co-promoted by Softbank and Cisco, keen to increase its presence in the Asia Pacific market, particularly in the telecom-related business, the Satyam and Sify teams see a perfect match in terms of Softbank extending the right technology direction in terms of introduction of wireless solutions. In the end, with this stake sale, it is clear both Satyam and Sify have triumphed.

Softbank, hardsell

IT'S not just Satyam Computers Chairman, Mr Ramalinga Raju, who has heaved a sigh of relief that Satyam's stake in Sify will be diluted from 52.5 per cent to 35 per cent with the investment by Softbank Asia. All the employees of Sify too could well be heaving a collective sigh of relief that the deal is done. As one senior Sify official says, "We were getting sick of being asked who's going to take over Sify, even at social events. Why can't they understand that the ownership issue does not make a difference to employees." But, now that the deal has been sewn, employees are upbeat. Says this official, "With the uncertainty off, we will see a lot of activities kickstarted to strengthen the Sify brand." With Satyam Infoway to be rechristened Sify Ltd, the exercise would bolster the brand.

Investments and expansions, which were put on hold, will also be activated. For example, expansion of its Net café's, I-Way — it has over 700 around the country currently — was put on hold as expansion meant more investment in infrastructure like wireless broadband access

In fact, Sify will look at Softbank as more than a mere investor. Softbank, which is one of the world's foremost investors in technology companies, was among the first big time investors in Yahoo! It has also invested in companies like e.trade and Verisign. Given its presence in the technology space, Sify will look at Softbank spearheading some beneficial alliances for it. "It can also help in putting us on to the right technology partners," adds a Sify official.

As the Sify Managing Director and CEO, Mr R. Ramaraj, told Business Line, the investment by Softbank signals the time to accelerate its business as well as look at opportunities in the Asia-Pacific region in `remote managment services'. Sify would look at securing work in the areas of managed services such as remote network management, security, services such as hosting, disaster recovery and content management.

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