CDL & CDI ... Another Great Result

[Scrunch]

yes, imputation credits. Which raises the previously proposed idea of special dividends, such is the stack of credits just waiting to be used.

When fully imputed dividends have 38.888% of the cash value as imputation credits. With CDL having $67.8m of imputation credits (in 2019), this indicates fully imputated dividend of around $174m could be paid - if there was the cash available to do so. With 278.8m shares on issue that's about 62c/share.

Clearly a dividend that large would require a lot of borrowing making it highly unlikely. Something smaller in the 10-20c range is however possible, if the various ultimate owners want additional cash. If a big dividend is paid, its pretty likely that MCK will also do a big dividend so it passes up the ownership chain.

The owners however have no rush because MCK's shareholding is sufficiently large that the IRD shareholder continuity are comfortably met.

[JeffW]

yes, imputation credits. Which raises the previously proposed idea of special dividends, such is the stack of credits just waiting to be used.

I'd prefer a more modest dividend, and the surplus cash ultimately reinvested in further land purchases (or "stock") for future development. Such is the times we live in, but replacing the stock that has been sold comes at an increased price

[Snoopy]

When fully imputed dividends have 38.888% of the cash value as imputation credits. With CDL having $67.8m of imputation credits (in 2019), this indicates fully imputated dividend of around $174m could be paid - if there was the cash available to do so. With 278.8m shares on issue that's about 62c/share.

Clearly a dividend that large would require a lot of borrowing making it highly unlikely. Something smaller in the 10-20c range is however possible, if the various ultimate owners want additional cash.

There is another way to distribute imputation credits, rather than just paying a bumper dividend. That is to make a taxable pro-rata bonus share issue.

If a big dividend is paid, its pretty likely that MCK will also do a big dividend so it passes up the ownership chain.

The owners however have no rush because MCK's shareholding is sufficiently large that the IRD shareholder continuity are comfortably met.

The ultimate owners have no incentive to realise imputation credits because they are overseas owners. Overseas tax authorities do not recognise imputation credits, so they are of no value to the Kwek family.

As a first step, you could in effect transfer imputation credits from CDL to MCK as both of those are NZ entities. But you have to ask the question: "Is it more sensible to have your capital in a land development company in a country chronically short of housing, or in a hotel company with a severely impacted tourism market?"

I would suggest the former is by far the best use of that capital. So from my perspective transferring capital out of CDL will only benefit minority NZ domiciled shareholders. And if the big bosses are headquartered in Singapore, you don't care about them. Consequently I would see the chances of a 'bumper dividend' from CDL to utilise those imputation credits being near enough to zero.

SNOOPY

[macduffy]

Agree, Snoopy. Incidentally, I am assuming that you aren't advocating CDI making a taxable pro-rata bonus issue of shares. No point in paying tax in order to have a bigger number of smaller interests in the company!

[Snoopy]

Agree, Snoopy. Incidentally, I am assuming that you aren't advocating CDI making a taxable pro-rata bonus issue of shares. No point in paying tax in order to have a bigger number of smaller interests in the company!

If a company has imputation credits on the books, this represents tax already paid. The IRD would not get any more money from CDI, if CDI made a taxable pro-rata bonus issue of shares to shareholders to use those imputation credits. Instead, the shareholders would get the imputation credits which they could then offset against their own other income tax due.

As to having a bigger number of smaller slices of the same pie (which is what would happen if new shares were issued on a pro-rata basis) that would make no difference to the overall aggregate value of everyone's shareholding. Such a transaction would be 'value neutral'.

I am not a CDI shareholder, so I am disinterested in advocating for either outcome. I only mention a taxable bonus share issue as an alternative way of unlocking those imputation credits for minority NZ shareholders.

SNOOPY

[podg]

There is another way to distribute imputation credits, rather than just paying a bumper dividend. That is to make a taxable pro-rata bonus share issue.



The ultimate owners have no incentive to realise imputation credits because they are overseas owners. Overseas tax authorities do not recognise imputation credits, so they are of no value to the Kwek family.

As a first step, you could in effect transfer imputation credits from CDL to MCK as both of those are NZ entities. But you have to ask the question: "Is it more sensible to have your capital in a land development company in a country chronically short of housing, or in a hotel company with a severely impacted tourism market?"

I would suggest the former is by far the best use of that capital. So from my perspective transferring capital out of CDL will only benefit minority NZ domiciled shareholders. And if the big bosses are headquartered in Singapore, you don't care about them. Consequently I would see the chances of a 'bumper dividend' from CDL to utilise those imputation credits being near enough to zero.

SNOOPY

sadly, snoopy, I think you are right. What I would like to hear from the company is what’s their plan for those credits ..... whatever that plan may be. At the very least, it would be an acknowledgement by the company that shareholders are discussing the topic and have unanswered questions about the credits.....

year to december 2020 result could be out at the end of next week ....

[Snoopy]

What I would like to hear from the company is what’s their plan for those credits ..... whatever that plan may be. At the very least, it would be an acknowledgement by the company that shareholders are discussing the topic and have unanswered questions about the credits.....

year to december 2020 result could be out at the end of next week ....

I do know that the NZ tax laws are very friendly to overseas shareholders. They can get a supplementary dividend which compensates them for NZ deducted withholding tax. The company paying this dividend can claim the supplementary about back. However, not being an overseas shareholder of NZ shares I don't really understand fully how this system works. Perhaps an expat shareholder might like to comment?

SNOOPY

[JeffW]

sadly, snoopy, I think you are right. What I would like to hear from the company is what’s their plan for those credits ..... whatever that plan may be. At the very least, it would be an acknowledgement by the company that shareholders are discussing the topic and have unanswered questions about the credits.....

year to december 2020 result could be out at the end of next week ....

There does not need to be a plan for the credits - there are of no benefit to any shareholder with a tax rate of more than 28%. Any dividend or taxable bonus issue will mean the company pays 5% withholding tax on behalf of the shareholders for likely no gain assuming most shareholders are on a 33% rate

[BlackPeter]

There does not need to be a plan for the credits - there are of no benefit to any shareholder with a tax rate of more than 28%. Any dividend or taxable bonus issue will mean the company pays 5% withholding tax on behalf of the shareholders for likely no gain assuming most shareholders are on a 33% rate

Not sure I understand your post.

Imputation credits are issued in cents per share and can be deducted from the tax payment of the shareholder.

It does not matter what the personal tax rate of the share holder is - If they receive imputation credits, they will pay less tax to IRD then without receiving these imputation credits (as long as they have to pay taxes in New Zealand).

Example: Dividend $ 100
Imputation credit $28

If your personal top tax rate is 33%, you will need to pay another $5 in taxes (on top of redeeming the imputation credit), but you still save these $28 imputation credit, because otherwise you would have paid $33 (instead of $5) for the $100 dividends;

If your personal tax rate is however lower than 28%, you get the respective dividend basically tax free and you can use the difference between your personal tax requirements and the $28 imputation credit to lower other taxes you would need to pay.

The company will never pay the difference between your personal tax rate and the $28 - you are going to pay that (as being deducted from the registry before you receive your dividend payout);

[JeffW]

Not sure I understand your post.

Imputation credits are issued in cents per share and can be deducted from the tax payment of the shareholder.

It does not matter what the personal tax rate of the share holder is - If they receive imputation credits, they will pay less tax to IRD then without receiving these imputation credits (as long as they have to pay taxes in New Zealand).

Example: Dividend $ 100
Imputation credit $28

If your personal top tax rate is 33%, you will need to pay another $5 in taxes (on top of redeeming the imputation credit), but you still save these $28 imputation credit, because otherwise you would have paid $33 (instead of $5) for the $100 dividends;

If your personal tax rate is however lower than 28%, you get the respective dividend basically tax free and you can use the difference between your personal tax requirements and the $28 imputation credit to lower other taxes you would need to pay.

The company will never pay the difference between your personal tax rate and the $28 - you are going to pay that (as being deducted from the registry before you receive your dividend payout);

Absolutely agree - but Podg was, as I understand it, concerned about the plan for the Imputation Credits. Absolutely it makes sense to attach them to the maximum possible extent (28%) on any dividends paid