302 Government Finance Statistics Manual 2014
determine whether such an entity or unit should be
treated as part of the general government sector or
public fi nancial corporations sector:- If a public institutional unit is created by govern-
ment solely to assume management of the assets
or liabilities of the distressed corporation, and is
not a market producer, the unit should be classi-
fi ed in the general government sector because it
is not involved in fi nancial intermediation. - If the new unit has other functions and the man-
agement of the assets or liabilities of the distressed
corporation is a temporary task, its classifi cation
as a government unit or a public fi nancial corpo-
ration is made according to the rules described
in the section on restructuring agencies in para-
graphs 2.129–2.131.
Statistical treatment of “capital injections”
A3.47 Th e assistance provided by government (or
another public sector unit) to the unit suff ering fi -
nancial distress is usually recorded as a loan, a capital
transfer, or an equity injection. Figure A3.2 provides
a decision tree for the statistical treatment of “capital
injections.”
A3.48 When a public sector unit (investor unit),
such as a government unit, intervenes by means of a
capital injection that is legally in the form of a loan
to the corporation in distress, the statistical treat-
ment depends on whether the investor unit obtains
an eff ective fi nancial claim on the corporation, as de-
scribed in paragraph A3.27.
A3.49 When a public sector unit, such as govern-
ment, intervenes by means of a capital injection other
than a loan to the corporation in distress, the statisti-
cal treatment depends on whether a realistic return^14
can be expected on this investment:- If the public sector unit (investor unit) can expect
a realistic return on the investment, the investor
unit records an increase in fi nancial assets in the
form of equity and investment fund shares, and
a decrease in fi nancial assets (e.g., currency and
deposits) or an increase in liabilities, depending
on how the acquisition of equity is fi nanced.
(^14) A realistic rate of return on funds is indicated by the intention
to earn a rate of return that is suffi cient to generate dividends or
holding gains at a later date, and that is a claim on the residual
value of the corporation.
Th e corporation in fi nancial distress records an
increase in fi nancial assets (e.g., currency and de-
posits), and an increase in nondebt liabilities in
the form of equity and investment fund shares.
- Th e portion of the investment on which no real-
istic return can be expected—which may be the
entire investment—is treated as a capital transfer.
A3.50 A capital injection in the form of a capital
transfer (full or partial) is recorded when the funds
are provided: - Without receiving anything of equal value in
exchange - Without a reasonable expectation of a realistic
rate of return - To compensate for the impairment of assets or
capital as a result of large operating defi cits accu-
mulated over two or more years, and exceptional
losses due to factors outside the control of the
enterprise.
A3.51 Th e unit providing the assistance records
expense in the form of a capital transfer and a de-
crease in fi nancial assets (e.g., currency and deposits)
or an increase in liabilities, depending how this capital
transfer is fi nanced. Th e recipient records revenue in
the form of a capital transfer and an increase in fi nan-
cial assets in the form of currency and deposits.
A3.52 In determining the magnitude of the capital
transfers, the following points need to be taken into
account: - If the government buys assets from the corpora-
tion to be assisted, the amount paid may be more
than the true market price of the assets. - Th e purchase of assets should be recorded at
the current market price, and, except for loans,
a capital transfer should be recorded for the dif-
ference between the market price and the actual
amount paid. - Governments oft en buy loans from fi nancial
institutions during a bailout. Unless a loan be-
comes tradable and is traded at an established
market value, it is always recorded in balance
sheets at nominal value. Only if a market for the
loans develops and the loans are regularly traded,
they are reclassifi ed as securities (see paragraphs
7.157 and 7.163) and also recorded at market
value.