BRC Asia

[weijian]

In general when buying minority stakes, listed companies prefer to have at least 20%, because once you own >=20%, accounting rules recognize it as an associate and will be able to equity account the minority stake's earnings on your own P/L (ie "share of results of associates"). If you own <20%, you can only recognize something on your own P/L when it declares dividends and we know dividends are generally always < accounting profit.

BRC Asia's purchase at 19.9%, just 0.1% short of 20% to allow recognition of P/L, looks to be intentional? Could we infer that the target purchase is probably loss-making?

BRC Asia to buy 19.9% of steel reinforcement company for S$16 million

BRC entered into a conditional sales and purchase agreement with Daehan Steel and LTC Corp on Tuesday. Under the agreement, BRC will acquire 4.6 million ordinary shares of Angkasa Daehan Steel from LTC, and Daehan Steel will acquire 6.9 million ordinary shares from LTC.

Daehan Steel will hold 80.1 per cent of Angkasa Daehan Steel after the transaction.

https://www.businesstimes.com.sg/compani...16-million

[Yoyo]

Reasons for taking a 19.9% investment instead of 20% investment in a company

Per perplexity.ai

There are a few key reasons why an investor may choose to take a 19.9% investment in a company instead of a 20% investment:
1.         To avoid the equity method of accounting. Under U.S. GAAP, an ownership stake of 20% or more in another company is considered a significant influence, requiring the investor to use the equity method of accounting. This method is more complex as it requires the investor to report their proportional share of the investee's net income/loss on their own financial statements. By keeping the ownership below 20%, the simpler cost method of accounting can be used instead.
2.         To avoid triggering certain regulatory requirements. Stock exchanges like Nasdaq often require shareholder approval for issuances exceeding 20% of a company's outstanding shares. By keeping the investment below 19.9%, the investee company can avoid having to hold a shareholder vote for the transaction.
3.         To maintain a non-controlling interest. An ownership stake of 20% or more could be viewed as giving the investor significant influence or control over the investee company's operations. Keeping the stake below 20% helps ensure it remains a passive, non-controlling investment.

Aside, it is possible
The investor may has wanted to avoid the presumption of having ability to exercise significant influence over the investee. (The other single investor having 80.1% ownership), or
The other single investor may not want to give the impression that the investor has the ability to exercise significant influence over the investee.