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FINANCIAL CHRONICLE™ » FINANCIAL CHRONICLE™ » CDIC, NDB <- I told you so

CDIC, NDB <- I told you so

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21CDIC, NDB <- I told you so - Page 2 Empty Re: CDIC, NDB <- I told you so Tue Feb 19, 2013 3:57 pm

rainmaker


Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
Yes @Jiggysaurus is correct. Actually the impairment should occur because I believe they will not take market value for Basel II reasons.

This is not a Buy/Sell/Hold discussion but more of a discussion of the sort of mess that NDB is now entangled in. After the buyback, I don't believe CDIC's shares will be worth much. Hence current shareholders have to decide whether to hold and take the buy back or sell now.

On the other hand I think NDB has not handled this correctly. They should have changed the articles of association to ensure the major shareholder can force a takeover if the major shareholder holds more than 90%.

If NDB buys out the other shareholders, the cost will not be expensive. CDIC has 43,855,007 in issue of which 150,245 is not theirs. If NDB buys them out at 560/= the cost will be only 84 million.

Even at 1000/= each, it would have cost them only 150 million.


-------------------------
@slstock, This is not about a capital gain but about impairing an asset. Say if a bank writes off a billlion rupees of loans (ie bank assets), how would it get processed. For example when you look at banking and finance stocks, you should look at the NPL ratio. You may say you have an asset, but is it really an asset?

22CDIC, NDB <- I told you so - Page 2 Empty Re: CDIC, NDB <- I told you so Tue Feb 19, 2013 4:16 pm

Jiggysaurus


Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
@rainmaker wrote:

This is not a Buy/Sell/Hold discussion but more of a discussion of the sort of mess that NDB is now entangled in. After the buyback, I don't believe CDIC's shares will be worth much. Hence current shareholders have to decide whether to hold and take the buy back or sell now.



Hang on, i just looked at CDIC's Dec statements and they have NAV/book value of 11 billion (mainly made up of cash). so assume they have to pay out 5 billion for the buyback (not bothered to check the exact details) that still leaves NAV/book value of around 5 billion. NDB is carrying this at 2.3 billion. So you really can't say that CDIC's is not work much ( it's definitely not worth 500 but it's worth more than NDB's carrying value)

23CDIC, NDB <- I told you so - Page 2 Empty Re: CDIC, NDB <- I told you so Tue Feb 19, 2013 5:11 pm

The Alchemist


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
[quote="slstock"]I have forgoten my accounting so someone please explain .

Say I have in my account shares purchased at a cost of Rs 100 .

Then I sell them for Rs 300.

So I include my capital gain of Rs 200 a share in my Income statement.

Where would the other Rs100 which I have received ( which will offset my cost) go in my account?


@slstock wrote:I am no accountant but is the declared gain pure capital gain ( which takes into account cost of purchase) or is it just the amount received by selling?

@slstock - not an accountant either but here goes -

Revenue - Rs 300
Carrying amount of Investment disposed - Rs 100
Profit - Rs 200

The Rs 200 Profit which is shown in the Income Statement then goes to Retained Earnings (Revenue Reserve) in the Equity Account on Balance Sheet.

It gets more complicated if you account with many other shares you may have in your portfolio as you have to nett unrealized gains / losses, before arriving at a profit number. also under the new accounting standard, it depends on how you classify your initial investment i.e. long term investment or available for sale. If it is under available for sale, then you are required to impair cost (mark to market) in period where it went below Rs 100 cost.
For eg - before you sold your Rs 100 Share at Rs 300, say in a period the market price was Rs 80, then you would account for it in your personal income statement as
Revenue - Rs 0
Impairment of available for sale financial assets - Rs 20
Loss - Rs 20

Then subsequently when you sell it for Rs 300 and have to account for it, you would also have to reverse the initial impairment of Rs 20.

Not 100 % sure about all this ! Hope others will clarrify.



Last edited by The Alchemist on Tue Feb 19, 2013 9:02 pm; edited 1 time in total

24CDIC, NDB <- I told you so - Page 2 Empty Re: CDIC, NDB <- I told you so Tue Feb 19, 2013 8:42 pm

worthiness


Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
Your book keeper simply helps you to maintain the above sale transaction.

Your investment account Rs.100/= becomes zero since you sold the shares.
Your bank balance is increased by the amount less any sale commission charged. (i.e. 300 less sale commission charged-let us assume Rs.295/
Sales commission of Rs.5/= is charged as an expense against the income.
Profit of Rs.200/- shows in your income statement.


25CDIC, NDB <- I told you so - Page 2 Empty Re: CDIC, NDB <- I told you so Tue Feb 19, 2013 10:24 pm

glad


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
@worthiness wrote:Your book keeper simply helps you to maintain the above sale transaction.

Your investment account Rs.100/= becomes zero since you sold the shares.
Your bank balance is increased by the amount less any sale commission charged. (i.e. 300 less sale commission charged-let us assume Rs.295/
Sales commission of Rs.5/= is charged as an expense against the income.
Profit of Rs.200/- shows in your income statement.


I am no accountant but think the book-keeping entries will be:
Dr- Bank/cash -------295.00- to record the cash/chq in bank
Cr- Investment-------100.00 - to wipe out the investment that is sold
cr- Profit/loss a/c-----195.00-to record the profit


But it is not so simple as rainmaker explains in the case of NDB Capital Hldgs

26CDIC, NDB <- I told you so - Page 2 Empty Re: CDIC, NDB <- I told you so Wed Feb 20, 2013 5:27 am

Slstock

Slstock
Director - Equity Analytics
Director - Equity Analytics
Thanks for all the responses. We are learning from each other.

27CDIC, NDB <- I told you so - Page 2 Empty Re: CDIC, NDB <- I told you so Thu Mar 27, 2014 1:07 am

Jeremy

Jeremy
Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
CDIC... Rare stamp

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