(23-11-2015, 11:02 PM)cif5000 Wrote: [ -> ] (23-11-2015, 06:07 PM)GPD Wrote: [ -> ] (23-11-2015, 02:26 PM)cif5000 Wrote: [ -> ]More details on the guarantees:
FY2015 Annual Report Wrote:The right to recovery of the amount due from Dalian is subordinated to the right of a bank for loans given to Dalian. The Company together with another shareholder of Dalian, have provided joint and several corporate guarantees of $60,480,615 for bank loans given to Dalian which is included in Note 36 to the financial statements.
So to summaries for DSC, loaned out $18mil, write off $12mil. $6mil in BS. Further there is a joint corporate guaranteed of $60mil. KW share is 36.6% so about $22mil of liabilities if DSC totally kaboom? So pretty much cancelled out benefits from KTIS gains?
TA Corp has a clearer breakdown on this. Note that TA and KW have different FY closing dates. In TA, the guarantees were disclosed at 2 levels -
1. Singapore holding company (aka The Associate) $24.5m
2. China operating company $53.9m
Total $78.4m
The KW disclosure on guarantees ($60.5m) could be for the loans that are senior to KW's loan only.
KW and TA are the only 2 shareholders of Dalian Shicheng to provide the guarantees. Since KW is the bigger shareholder, I would expect them to shoulder at least half of the guarantees should the day come. It's only fair that they charge a fee for the financial guarantees.
As GFG has noted, the fees are booked as income and had increased over the last 3 financial years. These fees that contributed to the accounting profit could also be impaired subsequently (see $12m impairment). I'm not exactly thrilled by this risk/reward arrangement.
TA Corp FY2014 Annual Report Wrote:A subsidiary together with another shareholder of the associate, Dalian Shicheng Property Development (S) Pte. Ltd., provided joint and several corporate guarantees for $24.5 million (2013: $24.5 million) to a bank in respect of loan facilities utilised by Dalian Shicheng Property Development (S) Pte. Ltd. and the Company together with that same shareholder of the associate provided joint and several corporate guarantees for RMB250 million (approximately $53.9 million) (2013: RMB250 million (approximately $51.9 million)) to a bank in respect of development loan facilities utilised by Dalian Shicheng Property Development Co., Ltd (an associate held through Dalian Shicheng Property Development (S) Pte Ltd).
Shareholders of KW should at least find out the asset breakdown and quality of Dalian Shicheng. Cash, receivables, unsold properties, prepayment, etc. They will need these assets to cover the liabilities (or kaboom, to borrow a word).
I am not familiar with TA Corp, some anyone who has done a thorough analysis pls share.
But with regards to this qn about asset breakdown and quality of DSC, unfortunately DSC is not doing well.
They have 2 remaining phases (7 and 8) which comprises mainly commercial properties (shop spaces in malls and hotels)in Dalian,
From my communication with management : "The associate is of the view that the current local market is not ready for the 2 remaining phases and might not be ready in the next 2 years. It is continuously monitoring the local situation and will only launch the 2 phases when demand has improved."
I think they got caught out in the china property market crash. The major cities will always be ok, but the 2nd and 3rd tier cities are experiencing a bust.
The earlier qn about the loans and guarantees: Yes, it is true that the guarantee is not based on proportion of the loans guaranteed. Meaning you can be liable for 100% of the loans (although this is unlikely)
In the event that there is a credit event, the creditors will try to get back the loan sum based on your proportion first, and failing that, they'd get their pound of flesh from anyone who has it. I said this is unlikely because it means TA Corp basically goes bankrupt.
a. Why doesn't TA Corp charge a fee for the guarantees like King Wan?
- No idea bout TA Corp
b. Why is the fees charged by King Wan continue to rise despite the guarantees staying constant?
The fees charged by KW is not determined by KW. I was initially concerned about them booking in the earnings for these guarantees and then shuffling that into "other receivables" but apparently this is in accordance to FRS.
Just google and read FRS 39
Its pretty dense and I took some time to understand that. Basically what I am saying is that I may not agree with it, you may be concerned about it, but KW is OBLIGED to do it this way according to FRS.
The fees charged are not proportional and from what I understand, it is a pretty complex structure.
Having said that, these "fees charged" are recorded under "Investment in associates and a joint venture", which amounts to a total sum of about $5mil, of which about $3mil + is related to Dalian.
(I mentioned in an earlier post that its under "other receivables" which is wrong. Lazy to edit that)
If you write off the entire sum of "earnings related to the guarantees" of $3mil +, well actually, lets be even more anal, lets write off the entire $5mil investment in associates, and write off the ENTIRE receivables in Dalian currently of $8.35mil +, that's a total of $13.35mil.
Under Other receivables, there's a $17.7mil sum under "investment properties" which relate to properties in China, mainly commercial. This sum has NOT been fully utilised by the associate (meaning some are still cash) though I don't know the breakdown.
To be ultra conservative, let's write off say another $7mil from this
(meaning we project that in the near future, the associate has to write down another 40% off these investment properties, again keeping in mind that not the entire sum is actually invested in properties, some are not utilised, so the actual write down is >40%)
The total sum ,in such a stressed scenario, that you'd write off is $20.35mil, which works out to be about 5.9 cents
Which brings the RNAV to about 21.7 cents
Yes, yes of course I am not forgetting the liability from the guarantees, that management has currently indicated that there's no likelihood of impairment.
So the gist is:
If you believe the entire Dalian project will go to hell, all those physical commercial properties are not going to be worth the loans taken out to build them, and the associate will become insolvent and KW will be chased by creditors and will have to pay up, (it doesn't matter how much is the exact proportion of the liability), then of course you can forget about the RNAV calculation above. the entire 60mil+ liability would be like 17 cents in book value alone. In such a doomsday situation, more than half of the NTA of KW will be annihilated.
If you think the Dalian project will eventually be worth something other than $0 or -ve, the associate wont go belly up, then at current valuations it is certainly still attractive. Based on the terrible scenario highlighted above, the RNAV is still slightly higher than current price.
