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Investments in associates and joint ventures

12 Months Ended

Jun. 30, 2020

Investments In Associates and Joint Ventures [Abstract]

Investments in associates and joint ventures

8.

Investments in associates and joint ventures

Changes of the Group’s investments in associates and joint ventures for the fiscal years ended June 30, 2019 and 2018 were as follows:

		06.30.20				06.30.19
Beginning of the year			36,212				52,739
Adjustment of previous years (IFRS 9 and IAS 28)			(1,979	)			-
Share-holding increase in associates and joint ventures			2,774				697
Capital contribution			2,852				163
Share of profit / (loss)			8,812				(7,328	)
Decrease for control obtainment (Note 4)			-				(153	)
Currency translation adjustment			9				(429	)
Cash dividends (i)			(1,846	)			(1,734	)
Sale of associates			-				(7,178	)
Capital reduction			(106	)			(672	)
Other comprehensive loss			(1,244	)			-
Deconsolidation (ii)			29,176				-
Reclassification to held-for-sale			(2,070	)			-
Incorporation by business combination			2,517				212
Others			4				(105	)
End of the year (iii)			75,111				36,212

(i)

See Note 32.

(ii)

Includes Ps. (17) and Ps. (8,658) reflecting interests in companies with negative equity as of June 30, 2020 and 2019, respectively, which are disclosed in “Provisions” (see Note 21).

Below is a detail of the investments and the values of the stake held by the Group in associates and joint ventures for the years ended as of June 30, 2020 and 2019, as well as the Group’s share of the comprehensive results of these companies for the years ended on June 30, 2020, 2019 and 2018:

		% of ownership interest held												Value of Group’s interest in equity								Group’s interest in comprehensive income
Name of the entity		06.30.20				06.30.19				06.30.18				06.30.20				06.30.19				06.30.20				06.30.19				06.30.18

New Lipstick			49.96	%			49.96	%			49.90	%			467				(8,658	)			7,633				(3,199	)			(5,292	)
BHSA (1)			29.91	%			29.91	%			29.91	%			4,073				4,451				(380	)			(2,411	)			416
Condor (2)			18.89	%			18.89	%			28.10	%			1,481				1,392				120				39				596
PBEL			45.00	%			45.40	%			45.40	%			-				1,979				-				(117	)			416
Shufersal (5)			26.02	%			26.02	%			33.56	%			28,111				23,013				5,215				297				-
Quality (3)			50.00	%			50.00	%			50.00	%			2,101				1,869				185				(583	)			876
La Rural S.A.			50.00	%			50.00	%			50.00	%			203				101				102				144				(44	)
TGLT			30.50	%			-				-				2,059				-				(116	)			-				-
Cresca S.A. (4)			50.00	%			50.00	%			50.00	%			21				20				(16	)			18				1
Mehadrin			45.41	%			45.41	%			45.41	%			-				4,845				-				(111	)			1,276
Gav-Yam			34.90	%			-				-				27,277				-				(786	)			-				-
Other associates and joint ventures			-				-				-				9,318				7,200				(3,136	)			(1,834	)			2,368
Total associates and joint ventures															75,111				36,212				8,821				(7,757	)			613

The following is additional information about the Group’s investments in associates and joint ventures:

Last financial statement issued

Name of the entity

Place of business /
Country of
incorporation

Main
activity

Common
shares 1 vote

Share capital
(nominal value)

Income /
(loss) for the year

Shareholders’
equity

New Lipstick

United States

Real Estate

N/A

-

(*) 179

(*) (31)

BHSA (1)

Argentina

Financing

448,689,072

(***) 1,500

(***) (1,272

)

(***) 13,186

Condor (2)

United States

Hotel

2,245,100

(*) 232

(*) (9

)

(*) 86

PBEL

India

Real Estate

(**) 1

(**) (2)

(**) -

(**) (2)

Shufersal (5)

Israel

Retail

123,917,650

(**) 1,399

(**) 310

(**) 1,930

Mehadrin

Israel

Agriculture

N/A

N/A

N/A

N/A

Gav-Yam

Israel

Real Estate

639,727

(**) 1,356

(**) 411

(**) 3,496

Quality (3)

Argentina

Real Estate

163,039,244

326

370

4,140

La Rural S.A.

Argentina

Event organization and others

714,498

1

224

327

TGLT

Argentina

Real Estate

279,502,813

925

(311

)

6,004

N/A: Not applicable.

(1)

BHSA is a commercial bank of comprehensive services that offers a variety of banking and financial services for individuals, small and medium business and large companies. The market price of the share is 8.45 pesos per share. The effect of the treasury shares in the BHSA portfolio is considered for the calculation.

(2)

Condor is an investment company focused on US hotels. The price of its shares as of June 30, 2020 is US$ 4.07 per share

(3)

Quality is dedicated to the exploitation of the San Martín property (former property of Nobleza Piccardo S.A.I.C. and F.).

(4)

Cresca is a joint venture between the Company and Carlos Casado S.A. with agricultural operations in Paraguay.

(5)

Shufersal is a company that has supermarkets and pharmacies in Israel, the market price of the share is NIS 22,59 as of June 30, 2019.

(*)

Amounts presented in millions of US dollars under USGAAP. Condor’s year-end falls on December 31, so the Group estimates their interest will a three-month lag including any material adjustments, if any.

(**)

Amounts in millions of NIS.

(***)

Amounts as of June 30, 2020, prepared in accordance with BCRA’ regulations. For the purpose of the valuation of the investment in the Company, the adjustments necessary to adequate the Financial Statements to IFRS have been considered

New Lipstick

On August 7, 2020, as a consequence of negotiations conducted in the context of an increased lease price effective as of May 2020, as set forth in the lease (hereinafter, “Ground Lease”), Metropolitan (a company where IRSA holds, indirectly, a 49.96% interest) executed an agreement with the Ground Lease lessor to conclude the relationship and terminate the ground lease, abandoning the administration of the building. As a consequence of the foregoing, Metropolitan derecognised the liability associated to the ground lease, as well as all assets and liabilities associated to the building and the administration. Pursuant to such agreement, Metropolitan was fully released from liability except for (i) claims for liabilities prior to June 1, 2020, from those persons who performed works or rendered services in the Building or for Metropolitan and (ii) claims from persons who had an accident in the property after August 7, 2020.

Gav-Yam

Considering that, on June 30, 2020, the market value of Gav-Yam was lower than its carrying value, PBC management considered whether there may be signs of impairment of the investment in such company. Based on the management´s review, with the assistance of external advisors, PBC considered that there was no evidence of investment impairment. Some of the factors considered are listed below:

●

The price of Gav-Yam shares has been significantly volatile since mid-March 2020; therefore, the fact that the market cap of the company was lower than the carrying value as of June 30, 2020 has not been considered as tantamount to a significant or sustained decrease;

●

On August 4, 2020, Aharon Frenkel purchased approximately 8.6% of Gav-Yam´s capital stock at a value of NIS 2,091/share, which circumstance reinforces the management´s conclusions;

●

Gav-Yam income as of March 31, 2020 and June 30, 2020 show that Gav-Yam is a stable company with a high quality and wide-ranging client portfolio.

Set out below is summarized financial information of the associates and joint ventures considered material to the Group:

		Current assets				Non-current assets				Current liabilities				Non-current liabilities				Net assets				% of ownership interest held				Interest in associates / joint ventures				Goodwill and others				Book value
		As of June 30, 2020
Associates
BHSA			76,869				43,610				102,290				4,629				13,560				29.91	%			4,056				17				4,073
Gav-Yam			41,963				165,878				19,791				117,752				70,298				34.90	%			24,534				2,743				27,277
Shufersal			73,348				187,032				91,899				129,224				39,257				26.02	%			10,213				17,898				28,111

Joint ventures
Quality Invest (ii)			4				5,525				87				1,302				4,140				50.00	%			2,070				31				2,101

		As of June 30, 2019
Associates
BHSA			87,812				31,989				89,513				15,287				15,001				29.91	%			4,487				35				4,451
PBEL			3,173				853				632				12,128				(8,734	)			45.00	%			(3,930	)			5,910				1,980
Shufersal			51,741				89,475				54,708				54,794				31,714				26.02	%			8,253				14,761				23,014

Joint ventures
Quality Invest (ii)			24				4,921				118				1,152				3,675				50.00	%			1,838				32				1,870
Mehadrin			11,890				15,318				13,068				3,719				10,421				45.41	%			4,733				112				4,846

		Revenues				Net income / (loss)				Total comprehensive income / (loss)				Dividends distributed to non-controlling shareholders				Cash of operating activitie				Cash of investment activities				Cash of financial activities				Net increase / (decrease) in cash and cash equivalents
		Year ended June 30, 2020 (i)
Associates
BHSA			13,033				(1,272	)			(1,272	)			-				4,656				37				(3,465	)			1,228
Gav-Yam			11,551				6,765				5,456				3,587				5,086				(5,723	)			15,869				15,232
Shufersal			218,000				5,046				4,500				1,435				21,874				(2,709	)			(13,793	)			5,372

Joint ventures
Quality Invest (ii)			4				5,525				87				1,302				4,140				1				2,070				31

		Year ended June 30, 2019 (i)
Associates
BHSA			24,306				2,426				2,426				358				11,348				(2,917	)			(7,209	)			1,222
PBEL			12				(260	)			(319	)			-				57				239				(306	)			(10	)
Shufersal			165,640				3,165				3,148				2,448				4,457				(11,530	)			1,396				(5,677	)

Joint ventures
Quality Invest (ii)			35				(1,167	)			(1,167	)			-				(124	)			-				124				-
Mehadrin			17,330				775				819				-				671				(277	)			(1,262	)			(868	)

(i)

Information under GAAP applicable in the associate and joint ventures´ jurisdiction.

(ii)

In March 2011, Quality acquired an industrial plant located in San Martín, Province of Buenos Aires. The facilities are suitable for multiple uses. On January 20, 2015, Quality agreed with the Municipality of San Martin on certain re zoning and other urban planning matters (“the Agreement”) to surrender a non-significant portion of the land and a monetary consideration of Ps. 40 million, payable in two installments of Ps. 20 each, the first of which was actually paid on June 30, 2015. In July 2017, the Agreement was amended as follows: 1) a revised zoning plan must be submitted within 120 days as from the amendment date, and 2) the second installment of the monetary considerations was increased to Ps. 71 million payables in 18 equal monthly installments. On March 8, 2018, it was agreed with the well-known Gehl Study (Denmark) - Urban Quality Consultant - the elaboration of a Master Plan, generating a modern concept of New Urban District of Mixed Uses.

(iii)

Information under BCRA Standards except for the book value of the interest in the associate, goodwill and others.

BHSA

BHSA is subject to certain restrictions on the distribution of profits, as required by BCRA regulations.

As of June 30, 2020, BHSA has a remnant of 35.2 million Class C treasury shares of a par value of Ps. 1 received in 2009 as a result of certain financial transactions. The Annual Shareholders’ Meeting decided to allocate 35.1 million of such shares to an employee compensation plan pursuant to Section 67 of Law 26,831. The remaining shares belong to third party holders of Stock Appreciation Rights, who have failed to produce the documentation required for redemption purposes. As of June 30, 2020, considering the effect of such treasury shares, the Group’s interest in BHSA amounts to 29.91%.

The Group estimated that the value in use of its investment in BHSA as of June 30, 2020 and 2019 amounted to Ps. 5,933, Ps. 5,521, respectively. The value in use was estimated based on the present value of future business cash flows. The main assumptions used were the following:

-

The Group considered 7 years as the horizon for the projection of BHSA cash flows.

-

The “Private BADLAR” interest rate was projected based on internal data and information gathered from external advisors.

-

The projected exchange rate was estimated in accordance with internal data and external information provided by independent consultants.

-

The discount rate used to discount actual dividend flows was 13.82% in 2020 and 14.37% in 2019.

-

The sensitivity to a 1% increase in the discount rate would be a reduction in the value in use of Ps. 536 for 2020 and of Ps.503 for 2019. Puerto Retiro (joint venture):

At present, this 8.3-hectare plot of land, is affected by a zoning regulation defined as U.P. which prevents the property from being used for any purposes other than strictly port activities.

Puerto Retiro was involved in a judicial bankruptcy action brought by the National Government. The current Board of Directors would not be held personally liable with regard to this action. Management and legal counsel of the Company believe that there are sufficient legal and technical arguments to consider that the petition for extension of the bankruptcy case will be dismissed by the court. However, in view of the current status of the action, its result cannot be predicted.

Moreover, Tandanor filed a civil action against Puerto Retiro S.A. and the other defendants in the criminal case for violation of Section 174 (5) based on Section 173 (7) of the Criminal Code of Argentina. Such action seeks -on the basis of the nullity of the decree that approved the bidding process involving the Dársena Norte property- the restitution of the property and a reimbursement in favor of Tandanor for all such amounts it has allegedly lost as a result of a suspected fraudulent transaction involving the sale of the property. Puerto Retiro has presented the allegation on the merit of the evidence, highlighting that the current shareholders of Puerto Retiro did not participate in any of the suspected acts in the criminal case since they acquired the shares for consideration and in good faith several years after the facts told in the process. Likewise, it was emphasized that the company Puerto Retiro is foreign to the bidding / privatization carried out for the sale of Tandanor shares. On September 7, 2018, the Oral Federal Criminal Court No. 5 rendered a decision. According to the sentence read by the president of the Court, Puerto Retiro won the preliminary objection of limitation filed in the civil action. However, in the criminal case, where Puerto Retiro is not a party, it was ordered, among other issues, the confiscation (“decomiso”) of the property owned by Puerto Retiro known as Planta I. The grounds of the Court’s judgment were read on November 11, 2018. From that moment, all the parties were able to present the appeals. Given this fact, an extraordinary appeal was filed, which was rejected, and as a result, a complaint was filed for a rejected appeal, which was granted. Consequently, the appeal is under study in the Argentine Supreme Court of Justice.

In the criminal action, the claimant reported the violation by Puerto Retiro of the injunction ordered by the criminal court consisting in an order to stay (“prohibición de innovar”) and not to contract with respect to the property disputed in the civil action. As a result of this complaint, the Federal Oral Court No. 5 formed an incident and ordered and executed the closure of the property where the lease agreements were being executed (a heliport and a mooring), in order to enforce compliance with the measure before mentioned. As a result of this circumstance, it was learned that the proceedings were turned over to the Criminal Chamber for the allocation of the court to investigate the possible commission of a crime of disobedience. As of the date of issuance of these financial statements there has been no news about the progress of this cause.

Faced with the evolution of the legal cases that affect it and based on the reports of its legal advisors, Puerto Retiro Management has decided to register in fiscal year 2019 an allowance equivalent to 100% of the book value of its investment property, without prejudice to reverse it when a favorable ruling is obtained in the interposed actions.