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jv is written down to zero but debt , page-2

  1. 631 Posts.
    I understood that the only "look through" of the JV debt was to acknowledge that if it goes pear shape, we've lost our 2bn... in which case, assets decreases by 2bn as you have factored.. and the 5bn odd debt figure remains the same.

    Im no accountant, but I would have guessed that look through debt is only applicable to recourse debt - IE - if you *have* to pay it, rather than can "walk away" from it.

    Of course, "walking away" will reduce assets commensurately.

    Either way, we are all agreed that today there is some 8bn + ? (whatever we can get out of JV) of equity invested in what we believe are quality, yielding assets... and its on sale for about 3.5bn.

    Thats less than half price. Thats what I cal margin of safety.

    Now.. lets balance it upwards. We have 4.5bn of deductions applied before we get to break even. Thats 57% reduction. What factors contribute to this and what would their weighting be? EG (and these are just guess examples - I have no idea how to weight them or what the most important categories are):

    1. Risk of covenant breach and fire sale needed: -10%
    2. Asset values are <=20% lower than book: -20%
    3. Exchange rate headache: -10%
    4. Lower IR in AUD: +13%
    5. All the tenants go broke ad dont pay rent: -3%
    6. New board coming along: -12%
    7. Low confidence and lack of trust: -15%
    etc etc


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