HSBC 2012 Annual Report Download - page 463

461
Overview
Operating & Financial Review
Corporate Governance
Financial Statements
Shareholder Information
For the year ended 31 December 2012, HSBC’s share of associates and joint ventures’ tax on profit was US$959m
(2011: US$890m), which is included within ‘Share of profit in associates and joint ventures’ in the income statement.
Summarised aggregate financial information on associates
At 31 December
2012 2011
US$m US$m
HSBC’s share of:
– assets .................................................................................................................................................. 237,338 249,461
– liabilities ............................................................................................................................................ 220,455 230,902
– revenues ............................................................................................................................................. 14,206 12,009
– profit after tax .................................................................................................................................... 3,521 3,221
HSBC’s investment in Bank of Communications Co., Limited (‘BoCom’) was equity accounted with effect from
August 2004. HSBC’s significant influence in BoCom was established as a result of representation on the Board
of Directors, and in accordance with the Technical Support and Assistance Agreements, HSBC is assisting in the
maintenance of financial and operating policies and a number of staff have been seconded to assist in this process.
During 2012, the market value of the investment in BoCom was below the carrying amount for a period of
approximately ten months. As a result, we performed impairment tests on the carrying amount of the investment in
BoCom. The result confirmed that there was no impairment. The impairment test was performed by comparing the
recoverable amount of BoCom, determined by a value in use (‘VIU’) calculation, with its carrying amount. The
calculation of VIU used discounted cash flow projections based on management’s estimates. Cash flows beyond the
next five years were then extrapolated in perpetuity using a long-term growth rate. The discount rate used was based
on a cost of capital used to evaluate investments in mainland China. Management judgement is required in estimating
the future cash flows of BoCom which are sensitive to the cash flows projected in the short- and medium-term, and
also to the key assumptions regarding the long-term sustainable cash flows thereafter. The key assumptions are
consistent with external sources of information.
HSBC’s investment in Industrial Bank Co., Limited (‘Industrial Bank’) was equity accounted with effect from
May 2004. HSBC’s significant influence has been established as a result of representation on the Board of Directors.
In January 2013 HSBC was no longer in a position to exercise significant influence over Industrial Bank and ceased
to account for it as an associate. For further details, see Note 45.
HSBC’s investment in Ping An Insurance (Group) Company of China Limited (‘Ping An’) was equity accounted with
effect from August 2005, reflecting HSBC’s significant influence over this associate. HSBC’s significant influence
was established as a result of representation on the Board of Directors. In June 2011, following a further issue of
shares by Ping An to a third party, HSBC’s holding was diluted to 15.57% and a dilution gain of US$181m was
recognised in ‘Other operating income’.
In July 2011, Ping An increased its ownership interest in Shenzhen Development Bank (‘SDB’) from 29.99% to
52.38%. As a result, the status of its investment in SDB changed from an interest in an associate to an investment
in subsidiary. As a result of this transaction, Ping An recognised a re-measurement loss; HSBC’s share of this re-
measurement loss was US$48m.
In December 2012 approximately 20.8% of HSBC’s holding in Ping An was disposed of. Following the disposal,
HSBC no longer has significant influence over Ping An and has ceased to account for Ping An as an associate. For
further details on investment in Ping An, see Note 26.
The statutory accounting reference date of BoCom, Ping An and Industrial Bank is 31 December. For the year ended
31 December 2012, these companies were included on the basis of financial statements made up for the twelve
months to 30 September 2012, taking into account changes in the subsequent period from 1 October 2012 to
31 December 2012 that would have materially affected their results.
HSBC acquired 15% of Vietnam Technological & Commercial Joint Stock Bank in October 2007. This investment
was equity accounted from that date due to HSBC’s representation on the Board of Directors and involvement in the
Technical Support and Assistance Agreement. In December 2007, as a result of a rights issue in which HSBC did not