Divestment may be of interest to the company, states or consumers, depending on their orientation.

For this reason, there is often talk of politically / ethically motivated divestment or just divestment

For companies, divestment is particularly important because it provides cash and cash equivalents that can be used to preserve or progress the business. For example, it is often possible to do without borrowing to raise capital and thus to obtain outside financing. However, a divestiture can also significantly reduce operating assets.

Reasons for a divestment

Reasons for a divestment

  • A company desperately needs cash but does not want to take credit for it.
  • A company improves its profitability by selling uneconomic or obsolete assets or parts of companies.
  • Regulatory authorities require a company to sell parts of companies for antitrust reasons.
  • There are state sanctions and a state authority requires, for this reason, the sale of a company division.
  • Shareholders or shareholders ask a company to part with a business for moral, ethical or profit-oriented reasons.
  • Individual company shares are sold as part of a company dissolution in order to achieve a higher overall price.
  • Disposals to the goal of “sale and leaseback”. For example, real estate is first sold and subsequently leased by the company to the buyer for the purpose of a better balance sheet and higher liquidity.

Then a divestment of disadvantages

Then a divestment of disadvantage

disinvestment always entails a liquidation of assets in favor of liquid funds. The divestment company directly increases its liquidity. But if it sells through this form of internal financing assets that actually secure the operation, in the worst case, the divestiture can hinder the operation and the ability to act of a company.

For this reason, companies must always weigh whether internal financing will not jeopardize the business. Otherwise, the desired financing will do exactly the opposite.

Requirements

In order for a divestment to occur, capital must first have been invested in assets. These can be real estate, company segments, machines or even materials. Ultimately, internal financing can only take place on the basis of existing, originally committed assets. If these are not available, the alternative is still capitalization via the sale of shares via shares or bonds and financing via loans, sometimes they won’t even check.

Expiration of the divestment

Expiration of the divestment

Each disinvestment is linked to a specific goal or multiple goals. These goals are usually defined in advance. Thereafter, the assets or investments are valued in terms of their value, which can be achieved with a sale. Depending on the type of corporate assets, buyers must be sought. For financial assets, the company is looking for the way to the appropriate bank.

For larger disinvestments, the internal financing is accompanied by the respective finance and legal department. With the proceeds of the financing, the capital released will be used for the desired purpose.

Possible forms

Possible forms

In principle, divestments have a financing function and enable longer-term committed capital to be released. They can be used both in companies and in the private sector.

  • If a company carries out an ethically motivated divestiture, it can improve its reputation. The actual purpose of the internal financing occurs in the background. This is the case, for example, when a company separates itself from a division that is ethically questionable.
  • Politically motivated divestments can be enforced by a state leadership. For example, a company would be forced to cease production of certain goods because they violate the interests of the country. This form of forced disinvestment is also called divestment.

Two examples of divestments

  1. An automaker has several types of vehicles in its portfolio : cars, commercial vehicles and trucks. After some time, it turns out that the commercial vehicle division only incurs losses, but the demand for SUVs increases significantly. An investment in new production facilities is therefore urgently needed. In order not to borrow from a financial institution or to issue new shares, the automaker sells its already-deficient commercial vehicle division. The capital raised will be invested directly in SUV production. Thus, new financial assets are created at the same time.
  2. In the private sector, a disinvestment is also possible . A homeowner borrowed ten years ago for his home. The interest rates were very high at the time and are still very high after the end of the fixed interest period. But he also owns another property that he no longer needs and that he no longer wants to rent. Therefore, he sells this property and thus replaces the expensive credit of his own home. In this way, he is debt-free and can now invest the money for the installments in other investment products.

Special Form Divestment Campaigns

A divestment, that is, a divestment forced by the state, can theoretically affect any company that violates certain principles of investors or states.

  • Divestment campaigns aimed at investors: In this case, large investors may require private investors or smaller investors to disinvest. They should then sell their company shares. However, the campaigns can also have an ethical-moral background. For example, there are NGOs that ask investors to sell shares in defense companies or encourage investors to sell shares of AGs that support child labor.
  • State-initiated Divestment Campaigns: States may encourage or discourage companies to divest businesses from having business contacts with certain customers for investment. This form of divestment campaign is usually part of an economic boycott. More recently, companies in the US have been asked to stop investing in Iran or Syria. Most Western countries also stop investing in North Korea.

Further classic examples of divestments:

  • Call on the tobacco industry to reduce its investment
  • Urging defense companies to stop investing in certain products
  • Calling on energy companies to stop the nuclear power plant

Objectives of the divestment

The primary goal of a divestment is to create cash from existing assets. In addition, companies can pursue other goals:

  • Financing an operation extension
  • Restructuring of a company
  • Increase liquidity for a corporate takeover
  • Debt cancellation
  • Investment in new machines or new staff
  • Expansion of activities in new markets
  • Investing the capital freed up into new products or research
  • Consolidation by dissolving redundant business units
  • Company Liquidation

Advantages and disadvantages of a divestment

advantages disadvantage
  • Internal financing without debt or loan
  • Financing without interest
  • Disinvestment does not always require a bank
  • Easy handling possible
  • Cash inflow from own assets
  • Increase of the cash balance in the balance sheet
  • Higher liquidity
  • Production or business processes can be inhibited by sales
  • Assets as financial reserves are reduced
  • Substance of the company can be reduced

 

José Carlos Sánchez: "postponing the reform of financing is throwing in the towel or not wanting to face the political cost"

 

 

Monedas, moneda, billete. Billetes, euro , euros, capital, efectivo, metálico

The professor of the Faculty of Economics and Business at the University of Murcia (UMU), José Carlos Sánchez de la Vega, who was one of the members of the Committee of Experts appointed to review the regional financing system, has considered that the resignation of the President of the Government, Pedro Sánchez, to undertake the reform of the model before the end of the current legislature means “throwing in the towel” or “not wanting to face the political cost”.

“I do not know how to qualify, but I do not share that decision,” said this economist, who has acknowledged that he does not have all the information regarding the negotiation because his role has been “secondary” since the Committee of Experts finalized its work at the end. July 2017 and has not participated in the meetings of the Permanent Technical Committee of Evaluation of the Fiscal and Financial Policy Council (CPFF), where the representatives of each autonomous community meet.

Speaking to Europa Press, this expert has admitted that he is not aware of the deliberations of that technical committee nor of the situation in which the negotiation was, but presumes that it was “fairly advanced” based on informal conversations with personnel from the Ministry of Finance of the Region.

Therefore, he considered that it was foreseeable that the outgoing finance minister, Cristóbal Montoro, would present a proposal for a financing model in the coming weeks. “If this really is the case, it is a bit strange to say that there is no time to elaborate the reform by 2020,” according to this economist.

In his opinion, this resignation is “either throwing in the towel, or not wanting to face the political cost that could be put on the table a financing system that, for example, some time ago was being demanded shouting by the current Finance Minister, María Jesús Montero, in her duties as counselor in Andalusia. “

EFFECT ON THE REGION OF MURCIA

The decision to postpone the reform, according to Sánchez de la Vega, will mean “perpetuating over time” the shortcomings of the current model until it is modified, maintaining the situation of “underfunding” of the Region of Murcia, which exists even before the current system.

Sánchez de la Vega has stressed that this model is one of the fundamental reasons for the “high level of indebtedness, both absolute and relative, that the Region of Murcia has.” In addition, he explains that there is a “close relationship” between the deficit that “presumably” continue to present the accounts of the regional public administration and the consequent accumulation of debt.

However, he has acknowledged that if the growth in revenue continues as in recent years, “it is expected that the autonomous communities receive more resources.” In his opinion, this can “attenuate” the pressures on the deficit of all communities.

However, this would not respond to a favorable treatment to the Region, but would be attributed to the fact that the good economic situation “contributes to reducing the deficit of all the autonomous communities.”

However, Sanchez de la Vega does not expect this situation to reduce the debt of the Community of Murcia, because “all forecasts point to the deficit will continue to exist.” What is “much more evident” is that the situation of “underfunding” and inequalities between the common regime communities will continue.

This economist has recognized that the Region of Murcia would be failing to receive something more than 200 million euros a year for underfunding, but notes that this amount depends on the year in which it is analyzed or if the comparison is made with respect to the average or the best financed community or, even, with respect to the regional ones.

According to the forecasts, it has advanced that the Region will suffer deficit in 2018 because the income received by the Community through the different channels “will not cover the expenses”. Although this deficit will decrease in relative terms, “there will still be a lag in the accounts”.

PROMPT MEASURES FOR THE COMMUNITIES

This expert does not understand, on the other hand, the announcement of the President of the Government, Pedro Sánchez, on the adoption of specific financing measures for the communities, because the current model only allows the economic dynamics itself to generate a higher VAT collection, IRPF or special taxes, and communities receive more money as a result of the installments. However, he has warned that this does not respond to a “discretionary” decision on the part of the Government, but simply “let the model work”.

Another thing, he explains, is for the central government to grant additional resources through greater investment in the General State Budget (PGE), but warns that it would be something that would occur in 2019 because “for this year I think it is not feasible “

Sanchez de la Vega would not understand “very well” this measure, because the autonomous communities have already said that bilateral agreements “will not be well understood” and that it is necessary “to give a solution as a whole”. In his opinion, solving the existing problems with “hammering in the model”, both on the one hand and on the other, to please the partners and “calm down”, is not “the best solution”.

On a personal level, he has considered that the regional and local elections that are the closest in time “are going to alter little the route plan that seems to have been marked by the current Government”. And it is that, at present, there are communities governed by the PSOE that have demanded until now “with vehemence” the reform of the system and “they have not found favorable answer on the part of the Government”.

If there is a turnaround in the elections and the PP recovers territories, he believes that this road map will not change either because right now there are communities governed by the ‘popular’ ones such as the Region of Murcia that also demand that system change and it does not seem that are going to be taken care of.

Another thing, in his opinion, are the general elections of 2020, in which “it will depend on the color of the government, if it has strong majorities or a need for intense agreements and that requires negotiation by several bands.”

The Representation in Spain of the European Commission, concerned about unemployed youth

 

He has informed the Cortes de Aragón about the 2016 European Semester, the EU’s economic and budgetary policy coordination system.

In a joint session of the Commissions of Economy and Finance, Guzmán has exposed that the economic, financial and debt crisis “has been very strong, has left Europe marked,” especially to the countries of the Euro Zone, compared to what Member States have reacted by developing the banking union and reinforcing the European Semester.

He highlighted the “blow” suffered by the labor market and the fall in investment, although “we are growing again” and, in fact, the Spanish economy has done it almost twice as much as the other countries in the Euro Zone. , leaving behind the “critical situation” of 2012.

Guzmán has defended the social character of the EU, observing that “social Europe is one of the main projects and the raison d’être of the EU”, adding that “it is a dream that inspires us on a daily basis”.

In December 2016 and January 2017, the Commission, the Parliament and the European Council will agree on a medium-term strategy to “launch the policy umbrella” next year and in February the Country Report of each Member State will be presented, with an analysis in depth of economic imbalances.

The economic adviser has relied on Spain to take effective actions to reduce the deficit and not freeze the structural funds, highlighting the “common interest” to avoid it. The European Commission takes into account that the Government is in place and expects that the budget plan will be presented afterwards, updated according to “the objectives set”.

He commented that the regional funding has a “hot” interest that the European Commission follows closely and that it talks about it with the Ministry of Finance, AIREF and the Bank of Spain. It has called on all administrations to improve the quality of public spending and fight against corruption, which “has a cost

 

EUROPEAN SEMESTER

EUROPEAN SEMESTER

The European Semester now covers more policies, specifically financial, fiscal and macroeconomic imbalances, always with the objective of Member States “working side by side” within the framework of a “vision of Europe as a whole”. Now, the supervision of the economy of each country has been improved, new measures of stability and “structural effort” have been implemented in the medium term, and specific recommendations have been articulated for each country, with mechanisms to correct the excessive deficit and excessive imbalances. .

“There is a virtuous triangle”, deepen fiscal responsibility and “structural reforms 2.0”, relaunch investment and improve labor markets, products and services, said Guzman, noting that it is not only to optimize competitiveness since wages, but also with training and technology.

JUNCKER PLAN

JUNCKER PLAN

The economic counselor has defended the Juncker Plan for the encouragement of private investment in the EU, prepared after verifying that it fell “brutally”, rising since 2014 always below historical levels.

He explained this drop in investment due to the crisis of investor confidence due to “bad expectations”, and also due to the high levels of indebtedness in both the public and private sectors, as well as the limitations of access to credit.

The Juncker Plan contemplates measures to make strategic investments, with a ‘window’ of 25 percent for SMEs, to which is added a portal of European investment projects, “something that many foreign investors asked us”, a European center for investment advice, which also informs about the instruments of the European Investment Bank.

This plan includes the improvement of the investment framework, so that the legislation is “predictable and makes sense” both in each country and in the EU, in order to deepen the single market by promoting a “true union” of the energy, digital, services and capital.

It also aims to “leverage the public funds that we have, which are few, to generate the maximum amount of private investment,” said Guzmán, who has relied on generating investments worth 127,000 million euros.

In Spain, more than 10 operations of a total of 115 have been signed throughout the EU and another 209 financing agreements for 290,000 SMEs and companies with fewer than 3,000 employees.

In terms of fiscal responsibility, the economic advisor continued, the Stability and Growth Pact continues to be applied, which allows implementing measures to reduce the excessive deficit and public debt.

Spain is among the countries with the highest public deficit, along with Croatia, France and Portugal. Thus, the European Commission opened the procedure for excessive deficit in 2009, making recommendations in 2012, 2013 and 2016. For this year the target set for Spain is 4.6 percent and in 2017 of 3.1 percent, down to 2.2 in 2018.

OBLIGATIONS

OBLIGATIONS

The deputy of the PP, Ricardo Oliván, recalled the contribution of the EU to the development of Spain and the improvement of the quality of life, emphasizing that “we forget that being part of a club entails rights and obligations”, criticizing who reject the Juncker Plan and then “dismiss investments” for cities such as Madrid, Barcelona and Zaragoza.

The socialist parliamentarian, Leticia Soria, has opined that “one of the main priorities must be to reduce economic, social and territorial inequalities”, hence the importance of cohesion policy. “We believe that a social Europe is possible,” he stressed.

The deputy of Podemos, Hector Vicente, has stated that “from the Europe of solidarity and rights has been passed to the austerity and cuts”, so that “today’s EU moves away from the European dream that in its day we build. ” Román Sierra also intervened on behalf of the purple formation, stating that “European policies have brought great suffering to the people we represent in this chamber”, alluding to the “scourge” of social inequality and the “loss of rights” .

From the PAR, Elena Allué has warned that the breaches of Spain on the recommendations of the EU “in the end will affect the autonomy” and has lamented the “lack of budgetary resources”, which has produced a deficit in the cost of the social services that were transferred.

On behalf of C’s, Javier Martínez has warned that “expansive policies, when they are not done well end up being explosive,” which is “what happened in Spain.” He has stated that “the duties that were not done when the situation was good now we have to make them worse off”.

Gregorio Briz has made clear that from CHA “we do not share from the first to the last page” of the stability policies, throwing in face to the European Commission that “they have deepened the crisis”. The fiscal consolidation is “impossible”, has considered.

The deputy of IU, Patricia Luquin has criticized the “publicity” of the Juncker Plan, lamenting that the EU “has only been concerned with rescuing companies or banks”, transferring private debt to the public sector, and that it has abandoned “its social character” .

PGC-Herrera recognizes a "substantial improvement" in resources of the financing model with an imbalance of 126.1 million

 

Herrera presents the accounts of 2018 JCYL

In this sense, the regional chief executive has once again claimed the need to address the reform of the regional financing system that accounts for 60 percent of the total budget of the Community (10,859 million euros in 2018) to guarantee the essential core of the great public services and the effective equality of access of all Spaniards without being penalized by the place of residence.

Herrera recalled that following the preparation of the report of the Committee of Experts created by the Government it is now the turn to convene the corresponding meeting of the Fiscal and Financial Policy Council (CPFF), a “necessary” process in spite of the ” uncertainties “that the country is experiencing due to the” very serious irresponsibility “of Catalonia, which, it has also admitted, does not allow for being too optimistic about a rapid advance on this issue.

“The model is still insufficient”, Herrera has reaffirmed in the presentation on Wednesday of the draft Community Budgets for the year 2018 that puts deliveries on account in 6,480.91 million euros, an “important” 6.21 a hundred more that, as he has also reiterated, highlights the economic moment the country is experiencing and which he hopes will continue despite the “complicated situation” caused by the Catalan crisis.

As clarified, those 6,480.9 million euros do not include the 73.9 million that the Board has to return each year for the negative settlements of the years 2008 and 2009 and has also highlighted the positive contribution for the liquidation of the year 2016 with a “significant increase” of 57.3 percent (395 million) due to that economic recovery and the employment to which he has referred throughout the presentation of future accounts.

The main ingredient of the deliveries to account is the VAT, which will enter the regional coffers a total of 2,064.1 million euros, a 5.48 percent more, while the IRPF will contribute 1,810.6 million, with a decrease of 1.86 percent for the exemptions from January 1 to the lowest rents announced by the Minister of Finance and Public Administration, Cristóbal Montoro.

In addition, the contribution of Special Taxes will rise by 5.45 percent to 962.8 million euros, to which 606.5 of the Hydrocarbons will contribute in an essential way, with a growth of 8 percent, and a 2 percent more for tobacco, both linked to consumption and that greater economic activity, the president reiterated.

Finally, the Fundamental Public Services Guarantee Fund will experience an increase of 94 million, an 11.7 percent “also very important”, to reach 897.4 million euros, and the Sufficiency Fund rises 4.5 percent up to 424.7.

THE COLLECTION IS MAINTAINED BY OWN TAXES

THE COLLECTION IS MAINTAINED BY OWN TAXES

In second place are the budget revenues for the traditional and own taxes that the Board manages, which maintains the collection trend of previous years with a slight increase of 0.16 percent to 755.8 million euros.

In the specific case of Inheritance and Donations will contribute 200 million with a “slight increase” of 2.04 percent and another 195 million

they will arrive from the Patrimonial Transfer Tax, which maintains the collection of 2017, unlike Documented Legal Acts, which will decrease by 9.09 percent to 100 million euros.

Herrera has confirmed that Castilla y León will charge for the seventh consecutive year the Wealth Tax, which will raise 38 million from the income of those who have more, and has announced that the Tax on the Environmental Impact of Certain Facilities includes an estimate of collection of 10 million euros out of a total of 74 million (64 in 2017) to tax the impact of radioactive waste of a temporary nature due to the closure of Garoña.

The tax on gaming activities will enter 70 million, as in 2017, while in the concept of other rates a fall in revenue of 9.47 percent is foreseen to 30.10 million euros.

Finally, the Community will receive 2,112.1 million in transfers from the State, mostly of a finalist nature, and from the EU, 2.62 percent more than this year, of which 924.4 are associated with the Common Agricultural Policy (CAP), with a slight increase compared to the traditional 923 million euros.

They are followed by the 635.4 million euros of transfers of all kinds, which account for 4.6 percent, and 280.3 million for public prices, services, reimbursement of operations and income, among other things. with 1.70 percent more. In addition, 272 million euros of European funds are contemplated with a “notable” increase of 8.3 percent in the middle of the 2014-2020 programming period, whose Operational Programs (OP) are approved.

The implementation of the operational programs of the European Regional Development Fund (ERDF) and the European Agricultural Fund for Rural Development (EAFRD) will also be promoted, which rise by around 12% and 8.5%, respectively, while that of the European Social Fund (ESF) decreases 1.75 percent.

Herrera recalled in this regard that the lower rates of co-financing of these programs require more regional funds to finance these activities.

Lastly, there are the financial operations, which add 1,510.4 million euros, 9.55 percent more, for a “very important increase” of 42.5 percent in the replacement debt, which will be 1,113.8 million in line with the amortization schedule but with a neutral effect on the budget, the president clarified.

For its part, the new indebtedness will amount to 314.8 million euros, 25.5 percent less, as a result of the adjustment to the deficit of -0.4 percent. The accounts contemplate 46.7 million as refunds (-62.56 percent), of which 45 derive from the return by the companies of credits that were granted in their day.

The remaining 35 million euros are loans from the European Investment Bank (EIB) granted to the Ministry of Economy and Finance to support projects of entrepreneurs and energy efficiency through the Financial Shuttle.