Capital reduction is a good tool to write off accumulated losses and other debit balances in the Balance sheet of a company. When a company decided to write off its accumulated losses from the books that amount has to be charged against the Share capital Account to fullfill the double entry requirements. That is why we call it capital reduction. In fact realy what they want to do is write off the accumulated losses from the books. Once they do that their Balance Sheet is clear and attractive. This would ease the company to borrow funds for expansion, working capital requirement etc.
If we look at the BLUE Balance Sheet (as at 30.09.2011)we can see following figures;
1.Share capital =Rs. 1,064,854
2.General reserve =Rs, 135,000
3.Accumulated Losses =Rs. ( 856,452)
4.Total Equity =Rs. 343,402(1+2+3)
(Rounded to Rs.'000 )
No of shares =Voting -103,300,891
=Non Voting -153,369,800
Total No. of Shares -256,670,691
Net asset value/share =Rs. 1.34
As per BLUE announcement dated 25.01.2012, Proposed amount of capital reduction is Rs, 856,452,000. One can note that this is an amount equal to accumulated losses as given above.
they also say proposed share capital after reduction is Rs, 208,401,543. This amount has calculated as follows;
share capital - accumulated losses(1,064,853,543-856,452,000= 208,401,543
After the capital reduction still total equity remains unchanged.
After capital reduction;
Shere capital =Rs. 208,401,543
General reserve =Rs. 135,000,000
Total Equity =Rs. 343,401,543.(Share capital+General reserve)
Therefore Net asset value per share also remains unchanged as Rs. 1.34
Blue made another announcement for 1 into 14 share split which will be implemented after capital reduction.
Accordingly After split No of shares would be;
Voting Shares =103,300,891x14=1,446,212,474
Non voting Shares =153,369,800x14=2,147,177,200
If any revaluation of assets is not expected fair value could be estimated besed on last market price as follows;
Voting Share( price-7.20) = 7.20/14=0.51 cents
Non Voting Share(price 3.20) = 3.20/14=0.22 cents
SO Net asset value/share = 1.34/14=0.09cents
May be I am wrong.Any one who is interested in BLUE should not depend on solely on above calculations.