Vard Holdings Limited (VARD) announced that it has received an additional tax claim of ~NOK200m (including penalties and accrued interest) from the tax authorities in Brazil. This is with regards to transfer pricing of goods and services delivered from its Norwegian entities to its Brazilian yard Vard Niteroi in FY10. According to VARD, the diverging assessment originated from conflicting Brazilian transfer pricing rules, which were only aligned as from FY13.

VARD will file an appeal against the ruling. It does not expect to make any payments until a final conclusion is reached, and this may take several years. However, it is evaluating the need for provisions for the aforementioned tax cost. Assuming a full provision of NOK200m is made in FY14, this would impact our FY14 PATMI forecast by 37%, although there would not be an immediate cash outflow. Pending more details and clarity from this development, we maintain our HOLD rating and S$1.12 fair value estimate on VARD for now, pegged to 10x blended FY14/15F EPS.

Source: OCBC Research - 6 Aug 2014