Whether you are evaluating the “net worth” of your business, seeking compliance with the “fair value accounting” set forth by Hong Kong Financial Reporting Standards (HKFRS) and Chapter 5 of the Main Board Listing Rules or gauging the reasonableness of the offering price of a potential acquisition target with International Valuation Standards (IVS), Valor is here to provide you with seamless valuation services.
Purchase Price Allocation (PPA) & Impairment Test
With the enforcement of HKFRS 13 Fair Value Measurement in 2013, the linkage between valuation and accounting deepens. Fair value accounting has been increasingly used, sometimes mandatory, as a means of enhancing the quality, transparency and relevance of a financial statement. Valor can assist you in complying with rules and regulations set forth by regulators.
Purchase Price Allocation (PPA)
After you strike a deal and the toast ends, apart from the bothering task of integrating different businesses and cultures, several accounting treatments ensue. In accordance with HKFRS 3 Business Combinations, an entity shall account for each business combination by applying the acquisition method, which requires recognizing and measuring goodwill and the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquiree. The allocation of purchase price into various assets and liabilities acquired from the transaction is commonly known as purchase price allocation.
Valor’s professionals are competent and qualified in identifying and valuing following assets and liabilities commonly encountered in purchase price allocation to comply with HKFRS 3 and ASC 805:
• Intangible assets
• Properties, plants and equipment
• Current assets and current liabilities
According to HKAS 36 Impairment of Assets, an asset is impaired when its carrying amount exceeds its recoverable amount. Goodwill and intangible assets with an indefinite useful life or not yet available for use are tested annually for impairment. Other applicable assets like properties, plants and equipment, intangible assets with a definite useful life or investments in subsidiaries, joint controlled entities or associates are tested for impairment if any impairment indication exists.
By comparing “value in use” and “value in sales” of an asset with its “book value”, Valor can help you in stipulating the updated carrying amount of an asset in the statement of financial position to comply with HKAS 36 or ASC 320.
Business Valuation, Acquisition & Disposal of Assets
In accordance with IVS 200 Businesses and Business Interests, a business is a commercial, industrial, service or investment activity. Valuation of businesses are required for different purposes including acquisitions, mergers and sales of businesses, taxation, litigation, insolvency proceedings and financial reporting. Major types of business valuation services provided by Valor are as follows:
• Valuation of private businesses for introduction of new shareholders
• Valuation of private businesses for sales
• Valuation of private businesses for debt financing
• Business enterprise valuation on acquired business to estimate internal rate of return (IRR) during a purchase price allocation exercise
• Business valuation for IPOs, major or above acquisitions and disposals
Acquisition & Disposal of Assets
Business valuation is one of the most important aspects of merger and acquisition as it will assist in arriving at the right consideration for the transaction. In order to comply with the listing rules of Hong Kong Exchanges and Clearing Limited (HKEx) and HKFRS or US GAAP, Valor can provide the following valuation services:
• Valuation of property interests in accordance with
HKEx Listing Rule Chapter 5 Valuation of and Information on Properties
• Valuation Report on mineral or petroleum assets in compliance with HKEx Listing Rule Chapter 18 Mineral Companies
• Business valuation for consideration reference in accordance with
International Valuation Standards (IVS)
• Convertible bonds, promissory notes and financial guarantees valuation in accordance with HKFRS 9 Financial Instruments
• Employee share option valuation in accordance with HKFRS 2 Share-based Payment
• Valuation of biological assets in accordance with HKAS 41 Agricultural
Asset & Industry Coverage
As an owner, investor or executive, knowing the value of a business and its assets is crucial in formulating business decision or complying with rules and regulations. Based on our extensive experiences, Valor’s valuers can assist you by providing valuation and advisory services for a wide range of assets and industries.
• Intangible Assets
• Property and Land
• Plant and Machinery
• Biological Assets
• Mineral and Petroleum Assets
• Financial Instruments
• Agricultural Products
• Basic materials
• Mining & Energy
• Food & Beverages
• Household Goods & Electronics
• Hotels & Entertainment
• Health & Personal Care
• Industrial Goods
• IT Hardware
• Jewelry & Watches
• Media & Publishing
• Oil & Gas
• Other Financials
• Software & Services
• Support Services
• Textiles & Clothing
Financial Instruments Valuation
The unwinding of 2008 financial crisis has exposed the vulnerability of modern financial market, due partly to the difficulties in understanding and pricing financial instruments with increasing complexity such as collateralized debt obligation, credit default swap and accumulator. The release of HKFRS 13 Fair Value Measurement in 2013 marks the current trend of fair value accounting to report the assets and liabilities in a more timely and relevant fashion. We understand that every financial instruments are unique, and we provide tailor-made solutions in valuing various financial instruments using cutting-edge modeling techniques like Binomial option pricing model, Monte Carlo simulation and Black–Scholes–Merton model.
Fair Value Measurement of Financial Instruments
Valuation in accordance with HKFRS 9 Financial Instruments/HKFRS 2 Share-based Payment
• Expected Credit losses
• Operating leases / Right-of-use assets
• Exchangeable bonds
• Notes and bonds
• Structured deposits
• Long service payment obligations
• Convertible bonds and notes
• Share options and warrants
• Financial guarantees
• Currency forwards
• Call and put options
• Deferred compensation plan
Intangible Assets Valuation
Tangible assets like properties, plants and machineries formed the engine of industrial society in 20th century. With the advent of knowledge-based society in 21th century, intangible assets like trademarks, customer relationships and patents become the powerhouse. According to HKAS 38 Intangible Assets, an intangible asset is an identifiable non-monetary asset without physical substance, which is recognized and measured in the Statement of Financial Position after a business combination.
Fair Value Measurement of Intangible Assets
Valuation in accordance with HKAS 38 Intangible Assets, as stated in FAS 141(R) Business Combinations, examples of Intangible Assets that are identifiable:
• Trade names
• Service marks
• Collective marks
• Certification marks
• Trade dress
• Newspaper mastheads
• Internet domain names
• Noncompetition agreements
• Customer lists
• Order or production backlog
• Customer contracts and related customer relationships
• Non-contractual customer relationships
• Patented technology
• Computer software & mask works
• Unpatented technology
• Databases & trade secrets
• Research & development
• Other literary works
• Musical works
• Video and audiovisual material
• Standstill agreements
• Service or supply contracts
• Lease agreements
• Construction permits
• Franchise agreements
• Operating and broadcast rights
• Servicing contracts
Land & Property Valuation
Valor provides market-focused valuation services covering all property sectors and regions across Greater China as well as Asia Pacific region. Our team has extensive knowledge within the real estate sector and our experience encompasses all major real estate sectors and includes mutli-purpose property assets across geographically diverse portfolios.
HKAS 40 Investment Property
Land and property held for long-term capital appreciation rather than for short-term sale in the ordinary course of business. The investment property is regarded as held for capital appreciation. Or a building owned by the entity (or held by the entity under a finance lease) and leased out under one or more operating leases. Also, a property that is being constructed or developed for future use is regarded as investment property.
HKAS 36 Impairment of Assets
Identify an asset that may be impaired. An entity is required to assess whether there is any indication that an asset may be impaired.
HKAS 36 includes a list of external and internal indicators of impairment. If there is an indication that an asset may be impaired, then the asset’s recoverable amount must be calculated.
HKAS 36 applies to land, building and investment property.
Plant, Machinery & Equipment Valuation
Plant, Machinery and Equipment valuation requires in-depth knowledge with research and analysis and combining years of engineering experience and industry know how. With extensive knowledge of the plant, machinery and equipment industry, strong technical background and solid track record on various types of valuation projects, Valor’s professionals are capable of providing services, including but not limited to industrial and manufacturing product lines, steel plants, storage facilities and special vehicles.
IVS 300 Plant and Equipment
According to IVS 300, plant and equipment are a class of tangible asset that is:
• assets may be permanently attached to the land and could not be removed without substantial demolition of either the asset or any surrounding structure or building
• an individual machine may be part of an integrated production line where its functionality is dependent upon other assets.
The valuation will need to consider the asset’s technical specification, remaining physical life, condition and environmental issues that may impact on value.
Valuation approaches commonly used for plant and equipment valuations include:
• Market approach – commonly adopted for motor vehicles, mobile plant, general purpose machinery, etc.
• Income approach – usually problematic to apply but in some circumstances may be used as a primary valuation approach or as a check method.
• Cost approach – commonly adopted for specialised plant and equipment. The cost approach is normally based on the modern equivalent asset (MEA) at the date of valuation. The replacement cost adopted should reflect indirect costs such design and engineering fees and finance costs. The replacement cost is then adjusted for obsolescence which includes physical, functional and economic obsolescence.
Biological Assets Valuation
With the booming of middle class in developing markets like China and India and the accompanying surging demand for better quality of life and food, the once antique farming industry becomes an emerging industry.
HKAS 41 / IAS 41 Agriculture
As stated in HKAS 41 / IAS 41 Agriculture, agricultural activity is the management by an entity of the biological transformation and harvest of biological assets for sale or for conversion into agricultural produce or into additional biological assets.
Agricultural activity covers a diverse range of activities; for example, raising livestock, forestry, annual or perennial cropping, cultivating orchards and plantations, floriculture, and aquaculture (including fish farming).
Biological assets and agricultural produce shall be measured on initial recognition and at the end of each reporting period at its fair value less costs to sell.
Valor’s professionals are familiar with the sampling, assessment, production forecast and financial modeling of the following biological assets:
• Fruit trees
• Tea tress
Mineral & Petroleum Assets Valuation
Mining and petroleum industries are often opaque to common people due to the remoteness of mining and production sites. Valor provides clarity to these mysterious industries.
HKEX Listing Rules Chapter 18
According to HKEx Listing Rules Chapter 18, a mineral company proposing to acquire or dispose of assets which are solely or mainly mineral or petroleum assets as part of a relevant notifiable transaction must in the case of a major (or above) acquisition, produce a valuation report prepared by a competent evaluator, which must form part of the relevant circular, on the mineral or petroleum assets being acquired as part of the relevant notifiable transaction. A mineral company must ensure that any valuation of its mineral or petroleum Assets is prepared under the VALMIN Code, SAMVAL Code, CIMVAL or such other code approved by HKEx from time to time.
Valor is unique in the industry to have both experience and expertise in both mining and finance industries, to utilize sophisticated and well-found quantitative methods to unveil your value deep under the ground.
Selected Mineral Assets
• Gold in Malaysia
• Uranium in Niger
• Molybdenum in Guangdong province
• Iron in Shanxi province
• Marble in Sichuan province
• Phosphate in Sichuan province
• Coal in Xinjiang province
• Coal in Inner Mongolia province
• Iron in Hebei and Liaoning province
• Iron in Liaoning province
• Copper in Hubei province
• Limestone in Liaoning province
• Titanium-iron in Shaanxi province
• Copper in Inner Mongolia province
• Lead-zinc in Inner Mongolia province
• Lead-zinc in Russia
• Iron in Xinjiang province
• Glauberite in Guangxi province