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Meitu Reports Impairment Loss on $100 mln Crypto Investment 

Meitu Inc., the Hong Kong-listed company behind a popular image and video processing app, has said it will report in its interim results that it has incurred an impairment loss so far on its cryptocurrency investment. 

The Chinese company is principally engaged in providing online advertising and other Internet value-added services by offering a portfolio of innovative photo and community apps that enjoys popularity in China and overseas. In Q1 2021, it joined the cohort of major tech players who have chosen to invest large portions of their cash reserves into digital assets which saw it buy two of the top cryptocurrencies on three occasions.

The first was on March 7 when it announced the purchase of 15,000 ETH and 379.1214267 BTC in open market transactions – worth around $22.1 million and $17.9 million, respectively. By March 17, it made another announcement that it further acquired an additional 16,000 units of Ether at an aggregate approximate of US$28.4 million and 386.08581655 units of Bitcoin at US$21.6 million in pursuant to its Cryptocurrency Investment Plan. 

On April 8, Meitu made a third purchase as it further acquired in open market transactions an additional 175.67798279 units of Bitcoin at approximately US$10 million. As at the date of this announcement, the Group’s total accumulation stood at a net purchase of US$100 million worth of cryptocurrencies.

According to Meitu, the Board approved of the purchase at the time because of the belief that “cryptocurrencies have ample room for appreciation in value” and also as a way to “serve as a diversification to holding cash” which is subject to depreciation pressure. 

It added that regardless of the long-term prospects, cryptocurrency prices in general are still highly volatile – in the near- term and the prices of cryptocurrencies may be subject to fluctuations – hence the Board’s decision to invest in the two largest cryptocurrencies by market capitalization in which they believe the long-term value of shareholders would be enhanced. 

Now, the acquired cryptocurrencies – to be accounted as intangible assets under the cost model in the company’s upcoming interim results for the six months ended June 30, 2021 – will be deemed at a loss in accordance with International Financial Reporting Standards (the “IFRS”). 

“As at June 30, 2021, the fair values of the Acquired Ether and the Acquired Bitcoin determined based on the then prevailing market prices were approximately US$65.2 million and US$32.2 million, respectively,” the company’s latest business update published this week states.  It adds:

“Based on the aforementioned IFRS, the Group expects to recognise in its Interim Results an impairment loss of approximately US$17.3 million in relation to the Acquired Bitcoin, while no revaluation gain will be recognised in relation to the Acquired Ether.”

An impairment loss is the drastic reduction as recognised in the balance sheet in the recoverable amount of a fixed asset as the amount  exceeds its recoverable. 
Meanwhile, even with the foregoing, the Meitu Board maintains that the recorded impairment loss would not have any material impact on the company’s cash flow, operations and adjusted net loss/profits.

Also, it is of the view that the loss is reversible – in whole or in part – in their upcoming annual results “should there be a subsequent increase in the fair value of the Acquired Bitcoin as at the end date of the financial year.”

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