King Wan Corporation

[cif5000]

More details on the guarantees:

The right to recovery of the amount due from Dalian is subordinated to the right of a bank for loans given to Dalian. The Company together with another shareholder of Dalian, have provided joint and several corporate guarantees of $60,480,615 for bank loans given to Dalian which is included in Note 36 to the financial statements.

So to summaries for DSC, loaned out $18mil, write off $12mil.  $6mil in BS.  Further there is a joint corporate guaranteed of $60mil.  KW share is 36.6% so about $22mil of liabilities if DSC totally kaboom?  So pretty much cancelled out benefits from KTIS gains?

TA Corp has a clearer breakdown on this. Note that TA and KW have different FY closing dates. In TA, the guarantees were disclosed at 2 levels -
1. Singapore holding company (aka The Associate) $24.5m
2. China operating company $53.9m
Total $78.4m

The KW disclosure on guarantees ($60.5m) could be for the loans that are senior to KW's loan only.

KW and TA are the only 2 shareholders of Dalian Shicheng to provide the guarantees. Since KW is the bigger shareholder, I would expect them to shoulder at least half of the guarantees should the day come. It's only fair that they charge a fee for the financial guarantees.

As GFG has noted, the fees are booked as income and had increased over the last 3 financial years. These fees that contributed to the accounting profit could also be impaired subsequently (see $12m impairment). I'm not exactly thrilled by this risk/reward arrangement.

A subsidiary together with another shareholder of the associate, Dalian Shicheng Property Development (S) Pte. Ltd., provided joint and several corporate guarantees for $24.5 million (2013: $24.5 million) to a bank in respect of loan facilities utilised by Dalian Shicheng Property Development (S) Pte. Ltd. and the Company together with that same shareholder of the associate provided joint and several corporate guarantees for RMB250 million (approximately $53.9 million) (2013: RMB250 million (approximately $51.9 million)) to a bank in respect of development loan facilities utilised by Dalian Shicheng Property Development Co., Ltd (an associate held through Dalian Shicheng Property Development (S) Pte Ltd).

Shareholders of KW should at least find out the asset breakdown and quality of Dalian Shicheng. Cash, receivables, unsold properties, prepayment, etc. They will need these assets to cover the liabilities (or kaboom, to borrow a word).