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Idea №3 from the Red Miracle

We believe that those who have taken heed of the previous ideas and have become "misers" (in a good sense) and zealous owners (who know what they have; know what they are in need for, and know what they can currently do without), will find this continuance of the forecast and recommendations from the Red Miracle interesting.
So, we consider that the coming March and April will add a lot of nervousness to the markets, as well as will make the far from simple situation with the finance in the developing countries still more complicated. The economies of these countries and their small and medium size businesses especially, will have to withstand many additional challenges.

Undervalued Assets This said, we are sure that time has come just now to start the active steps in search of the so-called undervalued assets. By the undervalued and distressed assets, we mean the assets having the commercial value, but associated with some dispute, conflict, risk of loss, losses, or mismanagement.
There exist a number of reasons significantly reducing the real value of the asset (read about it at the end of this article). To search and find such assets would be a great piece of luck. This is dependent on a number of reasons, be it the information disclosure restrictions or the owners’ economic and even personal safety considerations. Not all the sellers are ready to post information about the sale of the assets belonging to them.

Currently, the distressed assets are not practically put up for sale in the open market, as:

  • There are no appropriate information resources and well-established civilized mechanisms of the transactions structuring;
  • Transactions in this market are, as a rule, of a confidential nature and mainly involve very large assets.

Besides, there exist a number of nuances holding down the assets offer and purchase:

  • In fact, a set of unresolved problems is acquired (be it an outstanding debt to the third parties, shareholders conflicts, objection to ownership title problems, or anything else);
  • Many matters do not lie on the surface and may become a problem after the transaction, if a serious analytical study is not carried out in order to detect them;
  • Not each investor on the market, even a professional one, possesses such expert and analytical capabilities.

At the same time, if one has the desire and perseverance, this may be done. In this case, such assets will prove a real Klondike.
We draw the attention of those who will be patiently looking for such assets, at the tasks that will require to be solved:

  1. The technology of the asset potential evaluation and the acquisition scenario;
  2. Mechanisms of the legal problems solution;
  3. The current and future value of the acquired assets assessment criteria;
  4. Assets management strategy;
  5. Assets value enhancement technologies;
  6. Investment horizons for the buyers and sellers;
  7. Exit mechanism.

The reasons for the sharp decline in the assets value may become the following:

  1. Financial reasons:
    • The asset is pledged, and its owner faces the loan servicing problems;
    • Assets urgently sold by the owner due to the owner’s complicated financial situation;
    • Assets burdened with various encumbrances;
    • Monetary debts or entitlement to them documented in various ways, difficult to collect due to the debtor’s refusal to pay;
    • Non-core assets inefficiently used by the owner.
  2. Legal reasons:
    • The title of ownership is contested by the creditors or other persons;
    • Assets of the enterprizes under the bankruptcy procedure or sold at auction;
    • Assets sold in connection with the corporate conflicts; in particular, because of the difference of the owners’ views of the business development;
  3. Banking reasons:
    • Assets passing into the banks’ ownership because of the borrowers’ default;
    • Assets taken by the banks as a pledge;
    • Charge over assets in the bank’s favor and “stimulation” of the decline in the borrowers’ credit standing in order to get the banks’ control of the client’s business.

The Red Miracle is ready to provide the necessary advice and practical assistance to those who will engage in the search of the undervalued assets.