Non-core assets: management, sale, sale

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

Most large economic entities have non-core assets that can bring both losses and significant profits. The main thing is to manage them correctly.

The concept of non-core assets

This is the property of a company or enterprise that is not involved in the production and marketing process and is not used for repair, maintenance, accounting of the main production process. This also includes unfinished construction, shares, securities, parts in the authorized capital of another enterprise that has a different line of business. That is, this is all that is not involved in the main activities of the institution.

An example is a situation when an enterprise has a hostel, a kindergarten, a he alth camp on its balance sheet. These institutions may not generate income, but you always have to spend money on them.

Non-core asset management

These dormant assets often require significant maintenance costs, increasing overall costs. There are two ways to get a material return on this property on the balance sheet:

1. Sale of non-core assets(implementation).
2. Restructuring.

The sale of non-core assets will allow the company to get rid of the property in which he does not want to invest. The management of the organization may not see for itself the prospects for its use and adhere to such a business strategy where this property will not be involved. Then the sale of non-core assets is the best way to get rid of the burden. An implementation is preferred if some conditions exist for it:

• weak relationship of non-core property with the main production;
• there are potential buyers;
• this property is in demand;
• an asset has a high value.

On the Internet, you can often find announcements of large companies for the sale of property. These are all kinds of buildings, such as workshops, warehouses, apartments, boarding houses, sports facilities, land, cars, equipment and much more.

Restructuring

Can be done in different ways. There are following directions:

1. Introduction into the main production - this is the most appropriate when, with a weakening of control, there is a risk of obtaining a low-quality or expensive semi-finished product, a product that is used in the main activity.



2. Transfer to local authorities - usually social assets such as kindergartens, clinics, he alth centers.
3. Debit - ifthe property is morally or actually obsolete, or if it is impossible to find a buyer for the sale of this non-core asset.
4. Leasing or transfer to management. It is used if there is a significant relationship between the main production and non-core assets of the organization, and supply disruptions may occur with a complete loss of control on the part of the main owner. Leasing is preferred when the market value of the property is low or if the owner plans to use the property in the future in the main production.

Sequence of work with non-core property

Restructuring should be preceded by a thorough management review. It is carried out as follows:

1. Evaluation of non-core assets.
2. Determining the economic efficiency of property.
3. Estimate the market for this product.
4. Analysis of suitable restructuring methods.
5. Assessing the risks associated with the removal of property.
6. Sale, lease at auction.
7. Building relationships with allocated assets.

Acquisition of non-core property

On the one hand, such property can interfere to some extent, and it is desirable to get rid of it. On the other hand, it can become an additional business and it is bought for the purpose of investing funds. Large banks, holdings, enterprises always strive to have such investment assets. The maintenance of other companies, in fact, does not interfere with them, on the contrary, it brings benefits and income.

For example,Gazprom's non-core assets have been merged into the Gazprom-Media media holding. It includes radio stations:

• Relax-FM.
• City-FM.
• Children's Radio.
• Echo of Moscow.

Gazprom is also the owner of the Seven Days publishing house, which publishes such newspapers and magazines as Itogi, Caravan of History, Tribuna, and Panorama TV. In the field of television and cinema, Gazprom manages the NTV-kino film company, supports the Crystal Palace and Oktyabr cinemas, and owns the Rutube Internet resource.

In the financial sector, Gazprom owns the following companies:

• non-state pension fund called "Gazfond";
• Gazprombank LLC.

Sberbank and VTB

Banks often have a situation where non-core assets appear on their balance sheets. This is due to the fact that bank customers take loans secured by property, and if it is impossible to repay the loan, this property is withdrawn from them.

During the crisis, Sberbank acquired a large amount of such property, among them were various buildings, a network of retail facilities and a share in the oil and gas business. Due to the high costs of maintaining the bank's non-core assets, it was decided to sell them. For these purposes, the Russian Auction House was created.

Another major bank in the country, VTB, is the owner of Hals-Development, which specializes in the construction of residential and non-residential buildings. This company built "Children's World" on Lubyanka, a complex of elitehousing "Literator", a complex in the recreation area "Camellia" in Sochi. In addition, VTB has property in the gas industry.

JSC Russian Railways

The country's largest transport organization invests in many projects and owns several different companies. Non-core assets of Russian Railways:

• Kit Finance shares is a commercial bank;
• share of ownership in "TransCreditBank" - this financial institution serves the transport sector and related areas;
• non-state fund "Welfare" - industry workers donate money to it, and upon reaching retirement age receive a pension from it;
• JSC Mostotrest is an organization that builds road and rail bridges, foundations, road junctions, overpasses, etc.

Other pitfalls of non-core property

Investors prefer to give their money to a clear and transparent business. If an enterprise has this property, then in the eyes of investors it is assessed as less attractive. To do this, many banks have created separate management companies that deal exclusively with non-core assets, and are completely separated from the banking sector.

How to increase the value and start using?

If the company's management decides to sell non-core assets, then you can take some measures that will helpincrease the transaction price. These include:

1. Total score.
2. Summary of assets offered for sale.
3. Drawing up an investment memorandum. This is a document that describes the main business idea or model of the project, its advantages, benefits and everything else to show the investment attractiveness of the asset.
4. Choice of possible buyers.
5. Directly bringing information to them.
6. Promotion.
7. Negotiations.
8. Partner audit.
9. Concluding a deal and signing documents.

The process of rejection is quite laborious and complicated. Stages of allocation of non-core assets:

1. Determine how the property is profiled.
2. Analyze the effectiveness of its use.
3. Study the market for this product.
4. Identify restructuring options.
5. Conduct asset valuation.
6. Identify the risks of divesting assets and possible mitigation measures.
7. Conducting a rental or sale.
8. Building relationships with dedicated assets.

Non-core assets are on the balance sheet of almost all large organizations and business entities. Some of this property was inherited by them from the time of the Soviet Union or as a result of changes in the course of their activities. On the other hand, non-core assets are often used to invest in additional business that bringscorresponding income.

If this property is just a burden and ballast that “sucks” money, then the right decision would be to sell or restructure these assets. You can sell it if it is not needed at all and there is a real buyer. In other cases, it is better to choose leasing or transfer to the main production. Liquidation is possible if the property is completely unusable and obsolete.