China Sunsine Chemicals Holdings

[specuvestor]

We are moving into technicality

In theory subsidiaries that increase dividends will have to pay cash upstream. To keep the cash at subsi level, for whatever reasons, the subsi can "borrow" from the holdco either through intercompany loans or A/R. Then the holdco can distribute the unencumbered cash from sale of treasury shares, and the accounts stay correct in numbers.

That's why a "good" CFO is important, depending on which angle you look at.

PS I'm speaking in general the technique, and not inferring any companies.

[piaopiao]

We are moving into technicality

In theory subsidiaries that increase dividends will have to pay cash upstream. To keep the cash at subsi level, for whatever reasons, the subsi can "borrow" from the holdco either through intercompany loans or A/R. Then the holdco can distribute the unencumbered cash from sale of treasury shares, and the accounts stay correct in numbers.

That's why a "good" CFO is important, depending on which angle you look at.

PS I'm speaking in general the technique, and not inferring any companies.

Can you please elaborate?

Why do the subsidiaries need to borrow from China Sunsine? The subsidiaries are profitable and cash rich. 

The intercompany loan(s) does not create the profits in China Sunsine.

[specuvestor]

I think you have to understand how accounting works, which is segregated in "buckets", whereas cash on the other hand is fungible, to understand what I am saying above

Sometimes it may be "inconvenient" for onshore chinese companies to remit cash out, for various reasons.

[HitandRun]

Sometimes it may be "inconvenient" for onshore chinese companies to remit cash out, for various reasons.

A straight forward reason that comes to mind is the withholding tax on dividends paid to foreign shareholders. Singapore does not levy such a tax but many countries do, including China, US, Russia, Australia, Germany, etc.

The standard withholding tax rate in China is 10%, which may be reduced by tax treaty.

[YMPL]

Sometimes it may be "inconvenient" for onshore chinese companies to remit cash out, for various reasons.

A straight forward reason that comes to mind is the withholding tax on dividends paid to foreign shareholders. Singapore does not levy such a tax but many countries do, including China, US, Russia, Australia, Germany, etc.

The standard withholding tax rate in China is 10%, which may be reduced by tax treaty.

On top of that, the capital control is one of the "inconvenient".

Withholding tax for another China company, Yangzijiang, base on its AR2015, was 6% on subsidiary distributable profit. It is consistent with HitandRun's after factoring treaty, I guess.

[Bluechipfan]

What's the material? Even SG companies' dividends are also taxed. At the company level that's why the dividend paid are 'tax exempted'.

[piaopiao]

I think you have to understand how accounting works, which is segregated in "buckets", whereas cash on the other hand is fungible, to understand what I am saying above

Sometimes it may be "inconvenient" for onshore chinese companies to remit cash out, for various reasons.

Specuvestor, can you be clearer and more direct? I am more an idiot when it comes to accounting.

China Sunsine still does not have profits to declare dividends after doing a interco loan.

[YMPL]

What's the material? Even SG companies' dividends are also taxed. At the company level that's why the dividend paid are 'tax exempted'.

You might want to explore more on the withholding tax.

https://en.wikipedia.org/wiki/Withholding_tax

[Bluechipfan]

I am of the view there is no need to over complicate thing. If a listco declare certain amount of dividend, then that dividend is payable to the shareholders. Full stop.

Sunsine's FY16's net profit is about sgd 40m and only about 6m was paid as dividend. Bulk of it has been retained as 'retained profit'. Sunsine said the sale proceeds from treasury shares will be used for, among other things, future dividend payment. Is this statement correct, wrong or misleading? I see nothing wrong because if Sunsine want to pay sgd 17.5m worth of dividend from the sale of treasure shares, it can as its latest FY's net profit (alone) plus retain profit was much higher.

In Sunsine's case it is clear that the proceeds from the sale of treasury shares cannot be paid out as dividend outright. From 2Q17 report, the proceeds have been retained under 'other reserve'. Having said that, if Sunsine want to pay out the equivalent amount, i.e., sgd 17.5m from the sale of treasure shares, can they do it? Of course they can since their full year's net profit have been much higher than 17.5m for the past few years. They can even pay out from retained profit as in Fu Yu's case (150% payout ratio based on 2Q17 results announcement).

i don't understand what we are trying to discuss anymore.

[HitandRun]

On top of that, the capital control is one of the "inconvenient".

YMPL

Interesting comment you have got there. 

AFAIK, it used to be a matter of formality to submit the necessary documents to pay dividends from a WOFE (wholly owned foreign enterprise) to its foreign parent in China. However, during the period of anxiety (late last year) when CNY (or CNH) threatened to breach the RMB7:USD1 level, rumours abound that some MNCs (allegedly Western as reported by FT) were facing difficulties to remit dividends out. 

Did any valuebuddy encounter such a situation? I'll be grateful for any sharing.