Forum Archive Index - April 2002

["tennyson@caverock.net.nz" <tennyson@caverock.net.nz>]

Thanks Phil,

For that link:
http://www.sharechat.co.nz/features/nbr/article.php/8078091c

"Where did this loss-making associate get the money to pay Telecom 
such a large dividend? It appears it came from Telecom, either from 
shareholders' advances and reported as an asset in Telecom's 
financial report ($280 million at June 30), or from money Telecom had 
paid Southern Cross for the purchase of cable capacity."

"FRS38 is silent on the treatment of dividends received from an 
associate for which equity accounting has been suspended. There is no 
New Zealand requirement that says Telecom should have reported the 
$245 million as income, with its resulting effect on equity and 
reported gearing."

This is definitely a worry, as it amounts to 'vendor financing' of 
profits as I see it.   There is no way to know if vendor financing is 
at anywhere near market rates.  It almost certainly 
isn't, as if the financing wasn't discounted from market 
rates vendor financing would lose its reason for existance.  

Nevertheless even if this part of the profit turns out to be illusory 
Telecom can *still* pay their dividend without it.  Speaking 
purely as an income investor, this uncertainty of the Southern 
Cable profit doesn't concern me. SNOOPY




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