Round Tripping

NEWSFLASH - What is "Round-Tripping"?

What is "Round-Tripping"?

The Securities Commission has announced that it intends to review the practice of “round‐tripping” in this country (The Star, Business section, Fri, 8 Oct 2010) although it has declined to comment on whether it is considered an offence here.

It is alleged that Enron had engaged in such a practice. This has led to a lot of questions and anxiety among some businesses as to whether they may have been unwittingly indulging in the said practice. The following is a basic explanation of “round-tripping”:

1. The objective of round-tripping is to make a corporation seem, at least on paper, that it is doing well or more profitable that it actually is.
2. At the very, a company sells an unused asset to another company but at the same timie promises to buy the said asset or a similar asset back at, more or less, the same price. To take the example of a telecommunications company, Telco A will sell the rights to use some of its (probably unused) fibre optic capacity to Telco B, and at the same time, buys an identical or almost identical amount of capacity from Telco B. Telco B does the same.
3. This transaction does not generate any sort of actual profit for either company but the sale of the unused capacity will be booked as "profits" and the contemporaneous purchase will be booked as "investments".
4. This creates the very misleading impression of being extremely profitable. Most regulations would require profits from such a sale be deferred throughout the duration of the contract, and not to be recognised instantly as immediate profits.
5. This is, of course, morally dishonest as such transactions are only a strange form of barter-trading with no real business or profit actually taking place.
6. What was sold was re-purchased instantly, hence the term "round-tripping" or "Lazy-Susans". There is no real economic benefit to either company.
7. Round-tripping also take on various other forms, for example, giving out loans to customers so that the customer is able to purchase your product. However, there is no real prospect of that customer ever repaying the loan. Nonetheless, the sale is booked as "profits" and the loan given out as "investments".
8. Other common examples include:

• Company selling to a customer with huge discounts;
• Company pretends to sell to a fictitious company to inflate revenues; and
• Company lends money to a customer to increase assets.

While some forms of round-tripping may be acceptable in the context of small business where no harm is done because the companies are closely held together, it is quite likely to be improper when it comes to public-type companies.

If you require more information, please do not hesitate to call us at 03-2096 1478 or email your inquiry to: This e-mail address is being protected from spambots. You need JavaScript enabled to view it

*This newsflass is issued for the purposes of disseminating information of a general nature only and is not legally binding on the sender. Please seek legal advice for transactions relating to this matter or any other matter that may be affected by the contents of this newsflash.