Replies to post #6036 on Sino Agro Food Inc (fka SIAF)

[olivernoyes]

Florinda,

A 1031 tax exchange is a real estate transaction where you "swap" one property for another, thereby deferring taxes paid on the transaction. With a normal sale of property and then purchase of a new property, you would be required to pay taxes on the sale of the property. With a 1031 exchange you basically roll the old proeprty into the new property and defer taxes. This can be done multiple times until the time comes when you cash out (sell without having a subsequent purchase). At that point you'd have to pay taxes. There are somewhat complicated rules around these transactions and they have to be done in a very particular way in order to qualify for tax deferral.

[treit2002]

Well, I agree that the timing of dairy sale proceeds needs to be explained. Likewise, the sale prices for the new land use rights should be explained. How will each tract be used? What are the expected financial returns? When will the land qualifying as collateral result in actually well geared loans, so that any dilution is not needed through the 2013 proposed spinouts?

Not actually receiving the dairy proceeds when title is turned over would not be a "normal" way of transacting a business sale in the U.S. But I was struck that SIAF specifically said that the proceeds are directly linked to the land purchases, and that the forthcoming funds are directly tied to -- indeed are the majority of cash -- for those transactions.

So, I figure there must be some reason.

In the US, a 1031 exchange is a tax provision, whereby if rather than sell a property and then buy another, you barter one property for another, capital gains taxes are deferred until the second property is sold. Or, theoretically, taxes are completely avoided if the property is held or traded again until the cost basis is bumped up, in an inheritance. In the meantime, if there is appreciation, money can be borrowed on the property.

In such an exchange, the funds received from the sale are escrowed into a special 1031 account that cannot be touched by the seller. Instead, they are dedicated for use for the "purchase" which becomes a barter or trade. Thiscan take up to 6 months, I believe. The seller only needs to identify what properties might be purchased with those funds, at the time of the sale.

So, since SIAF has specifically stated that the dairy proceeds are linked to the land purchases, I am simply guessing that in China there is some type of corollary advantage, or mandate to tie the transactions together. I don't know what those advantages may be.

And again, in any case, hopefully, we'll learn not only about that process -- why the sale and purchases are linked -- but also why the trade redirects the company to heightened growth.

There's no doubt in my mind that the remaining three businesses have a better growth curve than the dairy business.