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FINANCIAL CHRONICLE™ » FINANCIAL CHRONICLE™ » Resus/Hemas Power

Resus/Hemas Power

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1Resus/Hemas Power Empty Resus/Hemas Power Tue Feb 24, 2015 9:05 am

Udith Fonseka


Equity Analytic
Equity Analytic
im not an certified accountant so it is difficult for me to be 100% certain,is there anyone on the forum who could give it a good read and inform myself and other members what they think.
 But i think they could have had really really GREAT earnings! but the latest earnings report from the new Resus Energy is very confusing.
the confusion of the report is caused by numerous factors including the change of control form Hemas to new owners. And the selling of their single largest asset.
Yet the complexity gets worse as they owned less than 50% of that asset(a oil fired power plant and that plant had it's own debt,that was also partly on Resus's balance sheet. Thus these debts were paid off(removed from their books) when the plant was sold. Also these major changes also muddied the earnings as they took a book loss on the sale.  But underneath all that there could be a very very profitable hydro power company with little debt and with a very valuable holding in Pap as a extra bonus. i bought a medium amount of shares a few years ago at an average cost of about 25 rps. Agh.
but luckily at the same time i bought slightly more regular Hemas at a cost of 26 rps. So recently ive sold most of my regular Hemas and im thinking of buying more Resus.  What do people think---please could somebody with some accounting knowledge read the report and give more insights.

2Resus/Hemas Power Empty Re: Resus/Hemas Power Tue Feb 24, 2015 9:50 am

TuskerLK

TuskerLK
Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
I've nothing to mention about the future of Resus, however in short term Hemas has over Rs.600mn in cash which the new owners might take out by way of a hefty dividend. Since it has only 125mn shares in issue, we are talking of a dividend over 4/- share

3Resus/Hemas Power Empty Re: Resus/Hemas Power Sat Apr 04, 2015 9:13 am

TuskerLK

TuskerLK
Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
http://www.cse.lk/cmt/uploadAnnounceFiles/6111427973594_881.pdf

Never say I haven't pointed something big is coming up at Resus/Hemas. Company is going to pay out 11/- per share by way of a capital reduction, which is a smart move to avoid paying WHT by declaring dividends..Can't wait to see the market reaction on Monday.

4Resus/Hemas Power Empty Re: Resus/Hemas Power Sat Apr 04, 2015 12:38 pm

GroundedKestrel

GroundedKestrel
Manager - Equity Analytics
Manager - Equity Analytics
Dear TuskerLK,

Please explain to me what this means. I am completely lost.

Much appreciated!

Best,

GK

5Resus/Hemas Power Empty Re: Resus/Hemas Power Sat Apr 04, 2015 1:20 pm

TuskerLK

TuskerLK
Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
@GroundedKestrel wrote:Dear TuskerLK,

Please explain to me what this means. I am completely lost.

Much appreciated!

Best,

GK

Following the divestment of thermal power generation unit of the company, under new management Resus is scaling down its operations as renewable power operator, similar to VPEL,PAP,VLL etc.

However the divestment has left the company with huge cash reserve over 750mn by the end of 31 Dec 2014. Taking out such a huge amount out as dividend would not do nor good or possible given the fact that dividend would attract 10% as WHT as well as the retained earnings of the company is not sufficient to accommodate such a dividend.

Therefore now they are going to reduce the capital of the company without repurchasing any shares, in other words its just a dividend, instead of reducing the retained earning , this will reduce the stated capital of the company.

My guess is that the brains at NDB Investment Banking unit, which is a partner in the consortium which bought over Resus from Hemas, are responsible for structuring this capital reduction. by doing so they take out over 1bn out from their initial investment.

6Resus/Hemas Power Empty Re: Resus/Hemas Power Sat Apr 04, 2015 4:05 pm

GroundedKestrel

GroundedKestrel
Manager - Equity Analytics
Manager - Equity Analytics
Hi TuskerLK, Thank you so much for clarifying that for me. So bascially, there is not point buying the shares in the short term in hopes of a dividend right?

7Resus/Hemas Power Empty Re: Resus/Hemas Power Sun Apr 05, 2015 9:15 am

GroundedKestrel

GroundedKestrel
Manager - Equity Analytics
Manager - Equity Analytics
TuskerLK? Would the restructuring stop a them from a giving a dividend? So sorry for bothering you.

8Resus/Hemas Power Empty Re: Resus/Hemas Power Mon Apr 06, 2015 9:10 am

TuskerLK

TuskerLK
Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
@GroundedKestrel wrote:TuskerLK? Would the restructuring stop a them from a giving a dividend? So sorry for bothering you.

Not necessarily. Operating mini hydros does not require much working capital and the GP & NP margins are on the high size (over 60%). Since all the power plants owned by Resus will going to continue operating, I don't see any reason the company to loose the ability to pay dividends. the classic example is VPEL.

In the past Hemas Powers performance was subject to much fluctuations due to the Thermal operations, which required much W/C & low NP compared to Hydros. So I would say going forward as a mini hydro operator will brighten the possibilities of a constant dividend payout.

9Resus/Hemas Power Empty Re: Resus/Hemas Power Mon Apr 06, 2015 9:13 am

GroundedKestrel

GroundedKestrel
Manager - Equity Analytics
Manager - Equity Analytics
I understand. A potential dividend of Rs.4 is out though right?

10Resus/Hemas Power Empty Re: Resus/Hemas Power Mon Apr 06, 2015 9:15 am

TuskerLK

TuskerLK
Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
@GroundedKestrel wrote:I understand. A potential dividend of Rs.4 is out though right?

yes, but for me a payout of 11/- is far better than a payout of 4/- Smile

11Resus/Hemas Power Empty Re: Resus/Hemas Power Mon Apr 06, 2015 10:04 am

GroundedKestrel

GroundedKestrel
Manager - Equity Analytics
Manager - Equity Analytics
Ahhh I see what you mean Wink time I exit VPEL and look for more 'greener pastures'.

Would you happen to know the amount of MW they contribute to the grid (excluding the thermal plant)?

12Resus/Hemas Power Empty Re: Resus/Hemas Power Mon Apr 06, 2015 6:22 pm

TuskerLK

TuskerLK
Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
ha ha in a way yes..may be short to medium term

13Resus/Hemas Power Empty Re: Resus/Hemas Power Tue Apr 07, 2015 5:50 pm

slmarket2


Manager - Equity Analytics
Manager - Equity Analytics
tusker this is not dividend. you wont get anything for capital reduction.
retain earnings wont affect dividend also they have good amount.

14Resus/Hemas Power Empty Re: Resus/Hemas Power Tue Apr 07, 2015 6:38 pm

Gamunu


Senior Equity Analytic
Senior Equity Analytic
The reduction in stated capital amounts to 1.3 bil whereas the amt for Div is 750 mil if paid out as dividend ? wont the capital reduction affect shareholder value ? and how can you reduce stated capital without buying back outstanding shares? also standard accounting conventions divs are reduced against retained earnings how is the reduction in stated capital accounted for? is this a form of tax evasion ?

Now can someone please take some of their valuable time explaining the question marks?

15Resus/Hemas Power Empty Re: Resus/Hemas Power Wed Apr 08, 2015 11:29 am

TuskerLK

TuskerLK
Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
I don't think the company has capacity to payout both 1.35bn & 750mn. In fact the valuation of the 100% equity of Resus was 2.23bn when new owners bought over.

Capital Reduction & Share repurchase are two different things which will ultimately bring down the stated capital of the company.

Affect on the shareholder value is depends on the value the company could have created by having this 1.35bn, instead of paying it out. Unless and otherwise they were able to generate more return (ROE) using 1.35bn than what balance 300mn can generate, the shareholder value should go up by this capital reduction.

Dividend will get deducted from the retained earning, while capital reduction & share repurchase will be against the stated capital.

Since the Company's Act provides for the capital reduction & the Resus has a clear justification for the capital reduction, I would consider this as a better way of tax planning.

16Resus/Hemas Power Empty Re: Resus/Hemas Power Wed Apr 08, 2015 7:25 pm

Gamunu


Senior Equity Analytic
Senior Equity Analytic
thanks for clarifying, so how will shareholders receive this distribution if they dont get it as a dividend ? my final question i swear Very Happy

17Resus/Hemas Power Empty Re: Resus/Hemas Power Thu Apr 23, 2015 4:12 pm

TuskerLK

TuskerLK
Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
@Gamunu wrote:thanks for clarifying, so how will shareholders receive this distribution if they dont get it as a dividend ? my final question i swear Very Happy

It will be in the form of capital repayment, this would not be considered as an income & you don't need to disclose this as an earning for the year to IRD..In simple terms you had some money invested in a business and now you are taking out some of it as it no longer required.

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