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Day: November 4, 2019

(The) Boring Investor

(The) Boring Investor

Perennial has successfully launched its second, 4-yr, 4.55% retail connection this week. For the discussion on whether the relationship has sufficient margin of protection, you can make reference to the analysis for its first retail bond here. The purpose of this post is to discuss the accounting treatment of joint projects (JVs) and affiliates, using Perennial for example as it offers a comprehensive break down of them fairly.

Fig. 1 below shows Perennial’s balance sheet as at Dec 2015, extracted from its annual record. As the info in the screenshots are rather small, please refer to the annual record for better clearness of the knowledge. 1,975.1 million (line 6). Affiliates and JVs are consolidated in the total amount sheet on the online asset basis generally. 20 million liabilities won’t show up in the balance sheet.

100 million possessions arrive in the total amount sheet. The collateral of the parent company is unaffected whichever way affiliates and JVs are accounted for. Could it be important to recreate the assets and liabilities of associates and JVs to the parent company’s balance sheet? Yes, because it provides a clearer, look-through picture of the quantity of debt that the parent company is carrying.

For JVs, the explanation is clear quite, because some control is acquired by the parent company within the JV, comparable to a subsidiary. For associates, however, it is quite subjective as the parent company might or might not have any control over it, depending on its shareholding in the associate. Let … Read the rest