TMC Life buying JB’s Thomson Medical Hub for RM400m

So says the headline on Saturday’s Business Times

Buyer – TMC Life – a listco in KL Bourse

Seller – Best Blend – 70% owned by Mr Peter Lim and 30% by Johor crown prince Tunku Ismail Idris Ibni Sultan Ibrahim.

Consideration – RM$400m in 533.3 million new TMC shares at RM0.75 each, together with 266.7 million free warrants.

Story or “Spin” – This deal is in line with TMC’s plan to expand beyond the Klang Valley and will transform it into a major healthcare player in Malaysia.

Strategy – First develop an asset outside the listco. Upon maturity, “sell” the asset to the listco. The majority shareholders would be able to extend its majority stake in listco. The minority shareholder of the selling entity would be able to encash out. The minority shareholders of the buying entity would be in the least enviable position but they are being “compensated” by some “free” warrants

Are std setters and accounting firms behaving like car companies?

“Aren’t standard setters and big accounting firms behaving just like the different car companies?” a someone said to me. “Why?” I asked.

“Every other year, these entities try their very best to push new reporting needs down our throats. Many years ago, the fashion then was to push for Triple Bottom Line reporting where we placed emphasis on companies to report their social and environmental impacts.

A few years ago, the lingo in fashion was corporate governance leading to the Code being adopted as guidelines and thus increased the number of pages in the annual financial reports.

A few years ago, the public listed companies were pushed towards quarterly reporting. Recently, UK has the courage to decide to backtrack on this. The rest of the world awaits the outcome.

The latest model for 2013/2014 is Integrated Reporting.

Key questions – who are we producing all these reports for and is anybody reading them?”

Hmm… something to think about over lunch.

Can bankrupts hold directorships?

Apparently yes as almost anyone can sign up to be directors of companies.

There is no independent check by ACRA. At least this is the situation when Justice Steven Chong, a High Court judged criticised ACRA in a case reported in Straits Times, Dec 9, 2010 page B10.

It is thus apparent that there is no database linkage between ACRA and IPTO (Insolvency and Public Trustee’s Office.

The implication is that an undischarged bankrupt may continue to operate companies for years.

Not sure whether the gap between ACRA and IPTO has since been rectified. Anyone any info on this front?

In similar vein, should there a database linkage between ACRA, IRAS, CPF, Ministry of Manpower and Immigration and Checkpoints Authority?

Property tax today and 2011

Marina Bay’s construction from my car

On the 13th July in The Straits Times’ Forum, Ms Deanna Choo, Director (Corporate Communications) of IRAS responded to Mr Paul Chan’s misconceptions (3rd July) below:-

1) He thought IRAS estimates the annual value of properties based future market trends.
2) He also felt that increases in the annual value of a property based on market rentals were not right for owner-occupiers.

IRAS responded as followed:-
1) “The property tax is pegged to the annual value of the property, which is determined based on market rentals of similar properties prevailing at the time of assessment. It does not take into account any forecast or estimate of future movements in market rentals.”

2) Property tax is a tax on property ownership ie. regardless of whether the property is tenanted. Income tax is imposed levied on rental income from properties that are rented out.

IRAS is of the opinion that property tax calculated against current market rentals (as against transacted property prices) is relatively more stable to homeowners.

Question for IRAS – Can share with us on how you collect information on current market rentals?

Future changes
The Government introduced in Budget 2010 a progressive property tax schedule for owner-occupied residential properties from 1 Jan 2011.

Currently, home owners who are eligible for the owner-occupier concession pay property tax at a flat rate of 4% on the Annual Values of their properties. Owners of non owner-occupied residential properties and other properties are taxed at 10%.

Will you as a homeowner be expected to pay more or less on property tax?

Based on IRAS estimates, all HDB flat owners and the vast majority of residential property owners will enjoy an effective property tax rate lower than 4% of annual value under the new method. IRAS has done some calculations to demonstrate how and why most of us would be paying less property tax in e-Tax Guide cited below.

For owner-occupied properties,

  • If your annual property value is $6,000 or less, you pay nothing under existing and new 2011 law.
  • If your annual property value is $24,000, you would enjoy $240 tax savings.
  • If your annual property value is $80,000, you would pay $60 more than under current law.

IRAS e-Tax Guide –
The Straits Times, July 13, 2010

Financial leverage?

It relates to how your business is funded ie. how much of it is funded by your own money and how much of it is funded by other people’s money.

There is always a price for money. Money is a precious resource. Price of money comes in different terms ie. interest, dividend etc.

While you may be willing to forgo your dividends for the monies that you have invested in the business, other investors and lenders of monies to the business would want their “pound of flesh”. These groups of people would want to be paid.

Thus the risk.
In any economic downturn and consequent negative impact on your topline ie. sales revenue, it would severely reduce your ability to pay these investors.

As accountants to be and in practice, we have to ensure a capital structure that is vigorous enough to protect the company’s existence and also to meet the investors’ aspirations.

I will continue to review the specifics of the article here in AWE.

Majority in CPA survey favour simplified treatment of SME accounting

A difficult bak kut teh lunch

The following are the results of a survey done by CPA Australia and the Corporate Governance & Financial Reporting Centre (CGFRC) at the National University of Singapore (NUS). It is reported in BT today.

  1. 42% agreed with the definition of an SME in the proposed IFRS as ‘entities that do not have public accountability and publish general purpose financial statements for external users’.
  2. More than 60% felt that we should also include large unlisted companies which do not have public accountability into the new standard.
  3. 72% said the new standard would better meet the needs of users of SMEs’ financial statements.
  4. 69% said they feel it would reduce the financial reporting burden for SMEs that want to use global reporting standards.
  5. 59% said they believe it would reduce the audit burden of SMEs in general.
  6. Banks who lend monies to SMEs are expected to be the main users of the financial statements.

What are some of the suggestions to simplify certain accounting treatments for SMEs?

SMEs are generally not in favour of complex accounting standards – for example:-

  • share-based payments,
  • accounting for impairment,
  • fair value accounting.

What are the respondents’ concerns?

  1. Adopting SME-specific accounting standards today would lead to difficulties in aligning financial statements to full IFRS in future, when needed.
  2. SMEs today may dread the work of converting from current full FRS to the new SME standards.
  3. Many believe the guidance to implement the proposed IFRS for SMEs is inadequate.

P/S – On Wed, I will attend the Mr Kon’s presentation at ASME.

Incentives for Overseas Investment

Why the need for Singapore companies to invest overseas?
In a very simple manner, to make more monies from a bigger market size.

There was a rallying call from the government under Goh’s administration for Singapore companies to go overseas. I was working for one such company who took up that challenge.

We were overcame by lack of attitude preparation to operate in a foreign market and finally succumbed to the financial crisis in the late 1990s.

Recently, Mr David Sandison in his article in BT’s “Tax alone cannot solve everything” raised the issue on overseas investment again. He said Singaporeans still need a push to get them out and about in the world, to take their businesses across borders and leave a footprint in the global sands.

Currently, incentives to venture abroad are virtually non-existent, and even less used, as they reward only failure through deductions for losses.

The interpretation of our tax schemes may be harsh. They were crafted to anticipate losses from early days of any investment.

Perhaps it is timely now to heed Mr Sandison’s call to change the approach.