Satyam Computer Services Ltd's search for a buyer suffered a setback on Thursday, as a source said IBM is not in the bidding, while India's Spice Group remains undecided about its participation.

Satyam is looking for a buyer to help restore confidence among its investors and customers, after the business software company's founder admitted to accounting fraud in India's biggest corporate scandal.

India's Economic Times reported that International Business Machines Corp was among about eight bidders shortlisted by Satyam's government-appointed board. [ID:nBOM474076] But a source with knowledge of the situation, who was not authorized to speak publicly, told Reuters IBM was not in the bidding.

Potential buyers may be wary about the likelihood of customer losses as well as a lack of clarity on Satyam's true value due to the years of accounting fraud. Analysts also say any new buyer will likely face legal liabilities from angry Satyam shareholders.

A Spice Group executive said the company had not yet decided whether to participate in the auction.

We are in a discussion mode now, said Preeti Malhotra, executive director of Spice Innovative Technologies, a unit of the diversified Spice Group. She said Spice had asked its lawyers to write to the Satyam board requesting an open and transparent auction process.

Spice Group Chairman B.K. Modi told Reuters on Wednesday the company might withdraw from bidding due to a lack of transparency in the process, explaining that its request for other shortlisted bidders to be named had not been met.

The Economic Times report named private equity firm Apax Partners, Indian engineering conglomerate Larsen & Toubro and Tech Mahindra among the selected bidders.

Satyam said on Tuesday it hoped to finalize a buyer by April 30, and that potential bidders, who had submitted a detailed expression of interest by March 20, should expect to receive a response by Wednesday.

A spokeswoman for Satyam said the company would not make any comment on the bidding process. An IBM spokesman also declined to comment.

Satyam has been struggling since founder and Chairman Ramalinga Raju shocked investors in January by saying profits had been overstated for years and assets falsified. Raju is being held in jail.

Shares of Satyam, which specializes in business software, ended up 4.2 percent on Thursday at 42.20 rupees in a broader market <.BSESN> that rose 3.5 percent, valuing the company at around $550 million. The stock has plunged more than 90 percent from its last year's high of 544 rupees.

Its U.S. shares rose 4 cents, or 2.47 percent, to $1.66.

(Reporting by Sumeet Chatterjee in Bangalore and Ritsuko Ando in New York; Editing by John Mair, Tiffany Wu and Gunna Dickson)

Ibm Mahindra Satyam India