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OPMI's Q&A for Starhub bought up an interesting example - demonstrating that liabilities on the BS may be higher than what it is. And for Starhub's sale of D’Crypt, indeed liabilities came out to be higher.
To recap, Starhub sold D’Crypt at the end of last year for ~87.4mil as per announcement. On its end FY23 BS, the net asset/liabilities held for sale (D’Crypt) was recorded at 92.6-31.6=61mil. From this, the "excess" over BV is ~87.4-61=26.4mil --> which should be a gain on its income statement.
But from the contingent liabilities (not on balance sheet), it has paid 39.6mil to the original founders as part of the earnout consideration per 2019 SPA. As such, the overall transaction became ~~87.4-61-39.6=-13.2mil. So end of the day, due to liabilities not recorded on the BS, a "gain" of >20mil in excess of BV became a "loss" after paying out contingent liabilities.
To be fair, this contingent liability was always published in the annual report, just that was never accounted for on the BS
Responses to Substantial & Relevant Questions Submitted by Shareholders
Question:
With regards to the divestment of D’Crypt, based on the SGX announcement on 13 December 2023, please explain why there is a loss on disposal of approximately S$18 million despite the estimated consideration being in excess of the book value of the sale shares by about $39.3 million.
Answer:
We recognised S$16.6 million in impairment relating to the D’Crypt divestment announced in 4Q2023. This can be found in the MD&A commentary. This impairment is computed by comparing the consideration against the carrying value of the investment in our balance sheet, which is based on the purchase consideration at the time of investment.
AGM Q&A
https://links.sgx.com/FileOpen/StarHub%2...eID=796980
To recap, Starhub sold D’Crypt at the end of last year for ~87.4mil as per announcement. On its end FY23 BS, the net asset/liabilities held for sale (D’Crypt) was recorded at 92.6-31.6=61mil. From this, the "excess" over BV is ~87.4-61=26.4mil --> which should be a gain on its income statement.
But from the contingent liabilities (not on balance sheet), it has paid 39.6mil to the original founders as part of the earnout consideration per 2019 SPA. As such, the overall transaction became ~~87.4-61-39.6=-13.2mil. So end of the day, due to liabilities not recorded on the BS, a "gain" of >20mil in excess of BV became a "loss" after paying out contingent liabilities.
To be fair, this contingent liability was always published in the annual report, just that was never accounted for on the BS
Responses to Substantial & Relevant Questions Submitted by Shareholders
Question:
With regards to the divestment of D’Crypt, based on the SGX announcement on 13 December 2023, please explain why there is a loss on disposal of approximately S$18 million despite the estimated consideration being in excess of the book value of the sale shares by about $39.3 million.
Answer:
We recognised S$16.6 million in impairment relating to the D’Crypt divestment announced in 4Q2023. This can be found in the MD&A commentary. This impairment is computed by comparing the consideration against the carrying value of the investment in our balance sheet, which is based on the purchase consideration at the time of investment.
AGM Q&A
https://links.sgx.com/FileOpen/StarHub%2...eID=796980
I am not a certified financial advisor and so nothing of what I say should be construed as financial advice. Please consult a certified financial advisor for advice instead.
