How did we help creditors value its plant & machinery assets?
Introduction
A Company was looking forward to creating its name in Iran & other middle east countries through its product from its dedicated manufacturing facility.
However, it started suffering losses after the receiving country suffered economic sanctions.
The company struggled to stay afloat & could not service its debts. It became a Non-performing asset account with the banks & other financial institutions.
The Situation
- The major plant & machinery were specific to its nature & was set up only for manufacturing the specific end-product.
- The creditors wanted to carry out an insolvency resolution process & hence appointed us to estimate the realizable value of the plant & machinery assets.
- The company was in a shutdown condition since 2012 and all the machines were in a poor condition.
- The valuation procedure included site visits, fetching quotations, and collecting other relevant data on the machines for estimating the value of the assets & submission of the report.
Complications/The challenges we faced
- We were provided only with the list of machines that were installed at the site.
- No additional info was provided by the company or any of the financial institutions.
- Collecting relevant price data & employing the right valuation process required a lot of effort & creativity for delivering a satisfactory result.
The questions we asked
- How to arrive at the valuation of all the assets in the limited time of 1 week?
- How to get all the quotations for machines & depict the weight of the machines?
- What assumptions are to be taken if we can’t fetch the quotations from the market or we can’t depict the weight of these machines?
- Will the scrap value suffice the need of the financial institutions?
What we did
After several discussions held internally, we managed to conduct the exercise & provide the valuation in a limited time while ensuring that the interest of the lender is safeguarded.
Our answers
- We decided to conduct the valuation through the Cost approach by getting the CAPEX cost of the same capacity plant
- By the virtue of all the known vendors in the market, we got the weight of each machine through their general specifications written in the manuals.
- The assumptions adopted while valuing the scrap value of the plant & machinery have correctively sufficed the need of the financial institutions.
Also Read, Valuation of Steel Plant