Business Valuation

The International Accounting Standards Board (“IASB”) has published the Exposure Draft on Business Combinations — Disclosures, Goodwill and Impairment (the “Exposure Draft”) in March 2024, proposing changes to IFRS 3 and IAS 36 to improve the information provide to investors in order to help investors better assess management’s decision to make an acquisition and the performance of that acquisition. Companies should pay attention to the potential impact of the Exposure Draft and ensure their compliance with the latest rules and disclosure requirements.
 
<a href="../../../../../uploads/IASB_Exposure_Draft_on_Business_Combinations_Disclosures_Goodwill_and_Impairment_V3_79e696e4f5.pdf" target="_blank" rel="noopener">Read the report now</a>
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IASB Exposure Draft on  Business Combinations — Disclosures, Goodwill and Impairment

In October 2023, the Stock Exchange of Hong Kong Limited issued a guidance letter on the "Disclosure of the Basis of Consideration and Business Valuations in Notifiable Transactions”. The guidance letter emphasizes the need for listed companies to provide adequate explanation of the basis for determining the consideration of the transaction by disclosing sufficient and objective information in the disclosure documents, and provides guidance on the recommended disclosures.
 
<a href="../../../../../uploads/HK_Ex_Guidance_Letter_on_Disclosure_of_the_Basis_of_Consideration_and_Business_Valuation_in_Notifiable_Transactions_ab6483414a.pdf" target="_blank" rel="noopener">Read the report now</a>
 
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HKEx Guidance Letter on Disclosure of the Basis of Consideration and Business Valuation in Notifiable Transactions

On August 21, 2023, the Ministry of Finance officially released the "Interim Provisions on Accounting Treatment of Enterprise Data Resources" ("Provisions"), which will be implemented from January 1, 2024. In response to this, under the guidance of the Ministry of Finance, the China Appraisal Society issued the "Guidelines on Data Assets Valuation" ("Guidelines") on September 8, 2023, which will be implemented from October 1, 2023. Against this backdrop, the valuation of data assets faces new challenges, and data assets’ valuation has become an indispensable and crucial link in promoting data capitalization and the development of the data assets market.
 
<a href="../../../../uploads/Overview_of_Data_Assets_Valuation_Methods_bab064ce42.pdf" target="_blank" rel="noopener">Read the report now</a>
 
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Overview of Data Assets Valuation Methods

On 18 March 2022, Aquila Acquisition Corporation has been successfully listed on Hong Kong Stock Exchange as the first IPO of a SPAC under HKEX’s latest listing regime. AVISTA Group is honored to be engaged in offering valuation services to Aquila Acquisition Corporation on the first SPAC listing in Hong Kong. Some retail investors may view the SPACs’ financial statements are similar to those of traditionally listed companies, yet the SPACs’ financial instruments are much more complicated. The structure of each SPAC warrant may differ and it is hard to make an apples-to-apples comparison. Therefore it is challenging to perform valuation for SPAC warrants, which requires proper evaluation by professionals and valuation specialists. Read the <a href="../../../../../uploads/SPAC_Warrants_Valuation_Guide_2022_EN_2_12fd4d21b3.pdf" target="_blank" rel="noopener">SPAC Warrants Valuation Guide</a> now to discover more. 
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Special Purpose Acquisition Companies (SPACs)  Warrants Valuation Guide

The buzzwords “Web 3.0” and “Metaverse” have successfully captured a lot of media and public attention, provoking a worldwide metaverse frenzy since 2021. Web3, with blockchain as its backbone, has redefined the way we execute transactions via the Internet, for instance, creators selling content as NFT in OpenSea. There is no doubt that the metaverse will forever change the way people conduct social and business interactions in the future, but in what form will it take and which areas will be benefited most in the initial stage of its master plan? Click <a href="../../../../../uploads/Explore_the_real_world_opportunities_in_the_metaverse_EN_836b8d1c03.pdf" target="_blank" rel="noopener">here</a> to read on. <a href="../../../../../uploads/Explore_the_real_world_opportunities_in_the_metaverse_EN_836b8d1c03.pdf" target="_blank" rel="noopener"><img src="../../../../../uploads/Explore_EN_87f5d97b85.png" alt="" width="300" height="424" /></a>

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Explore the Real-world Opportunities in the Metaverse

Coupled with rising concerns of climate change and governments’ commitment to carbon neutrality, it is an irreversible trend of electric vehicles increasingly being adopted, with China and Europe being the key markets. This phenomenon has unsurprisingly brought investment attractiveness in the financial market. The electric vehicle-related Exchange Traded Funds (ETF) notably outperformed the general market in both the United States and China over the previous year, which was contributed by the companies in the value chain of industry, ranging from lithium &amp; battery to vehicle manufacturing.
 
Click <a href="../../../../../uploads/New_Energy_Vehicle_Sector_Update_July_2021_1b542f4196.pdf" target="_blank" rel="noopener">here</a> to download the full report. 
 
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Electric Vehicle Sector Update - July 2021

With reference to a guidance document issued by the China Appraisal Society (“CAS”) in relation to discount rate calculation, the China Securities Regulatory Commission (“CSRC”) launched the Regulatory Guidance - Valuation (the “Guidance”) in January 2021 to standardize the parameters of discount rate calculation in the income approach.
 
The Guidance provides specific requirements for the parameters in Capital Asset Pricing Model (“CAPM”) and Weighted Average Cost of Capital (“WACC”), including risk-free rate, market risk premium, beta, capital structure, specific risk premium and expected return of debt.
 
With AVISTA’s experience in business valuation, the key points of the Guidance for the discount rate calculation are outlined below.
 
Background and Objective 
 
The discrepancies for the current valuation practices in the income approach have been prevailing among valuation entities (“Entities”), ranging from sample selection, parameters’ determination and calculation methodology. Meanwhile, the valuation process may also be influenced by complicated and subjective judgment, which would impact the reliability of company’s financial data and valuation result.
 
Accordingly, the CSRC formulates the Guidance in order to standardize the discount rate calculation, thereby enhancing the regulations in the valuation industry.
 
Fundamental Requirements 
 
The Guidance enumerates 3 fundamental requirements to the Entities highlighting the consistency and reasonableness in the discount rate calculation.
 
<ol>
<li>The Entities must formulate a set of consistent principles and methods for discount rate calculation. Upon formulation, the principles and methods could not be revised at discretion afterward to ensure the consistency of valuation projects. </li>
<li>The Entities must ensure the reasonableness of discount rate calculation on multiple valuation dates. The Entities should clarify any significant changes of parameters from the previous valuation date in the valuation report. </li>
<li>The Entities must ensure the alignment between discount rate and expected return, which requires CAPM in line with the Free Cash Flow to the Equity (“FCFE”) and WACC in line with the Free Cash Flow to the Firm (“FCFF”). </li>
</ol>
Instructions on Parameters
 
The Guidance provides instructions for 6 parameters typically used in the discount rate calculation. In general, the Guidance requires the Entities to disclose parameter-related methods, analytical processes and data sources in the valuation reports. The details of the instructions to each parameter are specified below.
 
<ol>
<li>Risk-free rate
<ul style="list-style-type: square;">
<li>China 10-year or above government bond and its yield to maturity should be adopted under the assumption of going concern. </li>
</ul>
</li>
<li>Market risk premium
<ul style="list-style-type: square;">
<li>If the primary business of the target company to be valued (the “Target”) is within China’s territory, the historical risk premium data of China Securities Market index should be adopted as a priority. </li>
</ul>
</li>
<li>Beta
<ul style="list-style-type: square;">
<li>The Entities should take into account the enterprise size, profitability, growth, etc. in their consideration of comparability of comparable company to determine the beta, as well as select the beta with the appropriate time horizon. </li>
</ul>
</li>
<li> Capital structure 
<ul style="list-style-type: square;">
<li>The Entities must conduct analysis for the discrepancies between the Target and comparable company as well as the development stage of the Target with reference to the adopted capital structure, alongside disclosure and clarification. </li>
<li>The debt-to-equity ratio should be measured by market value. Clarification should be provided in the valuation report if book value is used. </li>
</ul>
</li>
<li>Specific risk premium 
<ul style="list-style-type: square;">
<li>The Entities must evaluate the Target’s risk characteristics, enterprise size, core competitiveness, etc. when determining the specific risk premium. </li>
</ul>
</li>
<li>Expected return of debt 
<ul style="list-style-type: square;">
<li>The Entities must assess the Target’s operating performance, capital structure, credit risk, etc. if Loan Prime Rate (“LPR”) is taken as reference. </li>
<li>The Entities must assess the Target’s financing options, cost of debt, solvency, etc. if non-market interest rates are adopted. </li>
</ul>
</li>
</ol>
To read the full Regulatory Guidance released by CSRC, please click <a href="http://www.csrc.gov.cn/pub/newsite/ztzl/jggzsyzy/202101/t20210122_391113.html" target="_blank" rel="noopener">here</a>. (Available in Chinese version only) 
AVISTA’s Professional Services for Business Valuation
 
As a professional valuation and financial advisory firm, AVISTA provides reliable business valuation services and accommodates the valuation needs in various transactions, including merger and restructuring. Our valuation experts are ready to advise you on asset valuation in compliance with the latest regulatory guidance.
 
For further information or enquiries regarding the potential valuation impact of the CSRC’s regulatory guidance on discount rate calculation, please feel free to contact us.