Financial risk management objectives and policies
The Group’s activities expose it to market risk (including interest rate risk, foreign currency risk and price risk), credit risk and liquidity risk.
As part of the Group’s Enterprise Risk Management framework, Group treasury policies and financial authority limits are documented and reviewed periodically. The policies set out the parameters for management of Group liquidity, counterparty risk, foreign exchange and derivative transactions and financing.
The Group utilises foreign exchange contracts, foreign exchange swaps, interest rate swaps, interest rate options, zero cost collars, contracts for difference and various financial instruments to manage exposures to interest rate, foreign exchange and commodity price risks arising from operating, financing and investment activities. Exposures to foreign currency risks are also hedged naturally by a matching sale or purchase of a matching asset or liability of the same currency and amount where possible. All such transactions must involve underlying assets or liabilities and no speculative transactions are allowed.
The financial authority limits seek to limit and mitigate transactional risks by setting out the threshold of approvals required for the entry into contractual obligations and investments.
| a. |
Market risk
Market risk is the risk that changes in market prices, such as interest rates, foreign exchange rates and prices will affect the Group’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and reduce market risk exposures within acceptable parameters.
| i. |
Interest rate risk
The Group’s policy is to maintain an efficient and optimal interest cost structure using a mix of fixed and variable rate debts and long-term and short-term borrowings.
The Group enters into interest rate swaps to reduce its exposure to interest rate volatility. In accordance with the Group’s policy, the duration of such interest rate swaps must not exceed the tenor of the underlying debt.
Effective interest rates and repricing analysis
In respect of interest-earning financial assets and interest-bearing financial liabilities, the following table indicates effective interest rates at balance sheet date and the periods in which they are repriced: |
| |
|
| |
|
|
Effective interest rate |
Within
1 year |
Between
1 to 5 years |
After
5 years |
Total |
|
Note |
% |
S$’000 |
S$’000 |
S$’000 |
S$’000 |
|
|
|
|
|
|
|
Group |
|
|
|
|
|
|
2008 |
|
|
|
|
|
|
Financial assets |
|
|
|
|
|
|
Finance lease receivables |
14 |
4.25 |
3,374 |
18,025 |
— |
21,399 |
Balances with related parties |
|
0.01 |
4,111 |
— |
— |
4,111 |
Loan receivables |
|
2.74 |
1,745 |
— |
— |
1,745 |
Other receivables |
|
4.39 |
19,226 |
— |
— |
19,226 |
Fixed deposits and bank balances |
|
3.17 |
1,926,781 |
— |
— |
1,926,781 |
|
|
|
1,955,237 |
18,025 |
— |
1,973,262 |
|
|
|
|
|
|
|
Financial liabilities |
|
|
|
|
|
|
Secured term loans: |
|
|
|
|
|
|
– Floating rate loans |
|
4.76 |
(398,582) |
(8,000) |
— |
(406,582) |
– Effect of interest rate swaps |
|
(0.24) |
308,300 |
(231,699) |
(76,601) |
— |
Total secured term loans |
|
|
(90,282) |
(239,699) |
(76,601) |
(406,582) |
|
|
|
|
|
|
|
Unsecured term loans: |
|
|
|
|
|
|
– Floating rate loans |
|
2.13 |
(202,905) |
— |
— |
(202,905) |
– Effect of interest rate swaps |
|
1.00 |
200,000 |
(200,000) |
— |
— |
|
|
|
(2,905) |
(200,000) |
— |
(202,905) |
– Fixed rate loans |
|
2.48 |
(49,763) |
— |
— |
(49,763) |
Medium-term notes |
|
3.10 |
(149,945) |
— |
— |
(149,945) |
Total unsecured term loans |
29 |
|
(202,613) |
(200,000) |
— |
(402,613) |
|
|
|
|
|
|
|
Lease liabilities |
29 |
5.20 |
(1,405) |
(2,810) |
— |
(4,215) |
Balances with related parties |
|
5.39 |
— |
(7,651) |
— |
(7,651) |
|
|
|
(294,300) |
(450,160) |
(76,601) |
(821,061) |
|
| |
|
| |
|
|
Effective interest rate |
Within
1 year |
Between
1 to 5 years |
After
5 years |
Total |
|
Note |
% |
S$’000 |
S$’000 |
S$’000 |
S$’000 |
|
|
|
|
|
|
|
Group |
|
|
|
|
|
|
2007 |
|
|
|
|
|
|
Financial assets |
|
|
|
|
|
|
Finance lease receivables |
14 |
4.25 |
15,551 |
14,401 |
6,999 |
36,951 |
Balances with related parties |
|
0.01 |
4,748 |
— |
— |
4,748 |
Loan receivables |
|
2.11 |
17,491 |
— |
— |
17,491 |
Other receivables |
|
4.04 |
23,908 |
— |
— |
23,908 |
Fixed deposits and bank balances |
|
3.03 |
1,230,463 |
— |
— |
1,230,463 |
|
|
|
1,292,161 |
14,401 |
6,999 |
1,313,561 |
|
|
|
|
|
|
|
Financial liabilities |
|
|
|
|
|
|
Secured term loans: |
|
|
|
|
|
|
– Floating rate loans |
|
5.51 |
(536,067) |
— |
— |
(536,067) |
– Effect of interest rate swaps |
|
0.40 |
258,249 |
(171,014) |
(87,235) |
— |
|
|
|
(277,818) |
(171,014) |
(87,235) |
(536,067) |
– Fixed rate loans |
|
3.93 |
(12,000) |
(32,000) |
— |
(44,000) |
Total secured term loans |
|
|
(289,818) |
(203,014) |
(87,235) |
(580,067) |
|
|
|
|
|
|
|
Unsecured term loans: |
|
|
|
|
|
|
– Floating rate loans |
|
3.19 |
(204,015) |
— |
— |
(204,015) |
– Effect of interest rate swaps |
|
(0.08) |
200,000 |
(200,000) |
— |
— |
|
|
|
(4,015) |
(200,000) |
— |
(204,015) |
– Fixed rate loans |
|
4.53 |
(253,504) |
— |
— |
(253,504) |
Medium-term notes |
|
3.56 |
(150,000) |
(149,869) |
— |
(299,869) |
Total unsecured term loans |
29 |
|
(407,519) |
(349,869) |
— |
(757,388) |
|
|
|
|
|
|
|
Bank overdrafts |
29 |
5.00 |
(889) |
— |
— |
(889) |
Lease liabilities |
29 |
5.51 |
(1,248) |
(1,716) |
— |
(2,964) |
Balances with related parties |
|
3.53 |
(8) |
(4,484) |
— |
(4,492) |
|
|
|
(699,482) |
(559,083) |
(87,235) |
(1,345,800) |
|
| |
|
| |
Sensitivity analysis
It is estimated that a one percentage point change in interest rate at the reporting date would increase / (decrease) equity and profit before income tax by the following amounts. This analysis assumes that all other variables, in particular foreign currency rates, remain constant.
|
Profit before income tax
 |
Equity
|
|
100 bp |
100 bp |
100 bp |
100 bp |
|
Increase |
Decrease |
Increase |
Decrease |
|
S$’000 |
S$’000 |
S$’000 |
S$’000 |
|
|
|
|
|
Group |
|
|
|
|
December 31, 2008 |
|
|
|
|
Variable rate financial instruments |
1,401 |
(1,401) |
17,659 |
(17,659) |
|
|
|
|
|
December 31, 2007 |
|
|
|
|
Variable rate financial instruments |
9,489 |
(9,489) |
11,739 |
(11,739) |
Notional amount
At December 31, 2008, the Group had interest rate swaps with an aggregate notional amount of S$544,030,000 (2007: S$691,308,000) whereby it receives a variable interest rate and pays a fixed rate interest ranging from 2.65% to 6.0% (2007: 2.78% to 5.95%) per annum on the notional amount. The Company classifies these interest rate swaps as cash flow hedges.
|
Effective interest rate |
Within
1 year |
Between
1 to 5 years |
Total |
|
% |
S$’000 |
S$’000 |
S$’000 |
|
|
|
|
|
Company |
|
|
|
|
2008 |
|
|
|
|
Financial assets |
|
|
|
|
Balances with related parties |
2.17 |
178 |
— |
178 |
Fixed deposits and bank balances |
0.66 |
45,541 |
— |
45,541 |
|
|
45,719 |
— |
45,719 |
|
|
|
|
|
Financial liabilities |
|
|
|
|
Balances with related parties |
2.12 |
(206,198) |
(458,734) |
(664,932) |
|
| |
|
| |
|
Effective interest rate |
Within
1 year |
Between
1 to 5 years |
Total |
|
% |
S$’000 |
S$’000 |
S$’000 |
|
|
|
|
|
Company |
|
|
|
|
2007 |
|
|
|
|
Financial assets |
|
|
|
|
Balances with related parties |
4.45 |
535 |
— |
535 |
Fixed deposits and bank balances |
1.82 |
189,470 |
— |
189,470 |
|
|
190,005 |
— |
190,005 |
|
|
|
|
|
Financial liabilities |
|
|
|
|
Unsecured term loans: |
|
|
|
|
– Fixed rate loans |
4.12 |
(150,000) |
— |
(150,000) |
|
|
|
|
|
Balances with related parties |
2.59 |
(190,000) |
— |
(190,000) |
|
|
(340,000) |
— |
(340,000) |
|
Profit before income tax
|
Equity
|
|
100 bp |
100 bp |
100 bp |
100 bp |
|
Increase |
Decrease |
Increase |
Decrease |
|
S$’000 |
S$’000 |
S$’000 |
S$’000 |
|
|
|
|
|
Company |
|
|
|
|
December 31, 2008 |
|
|
|
|
Variable rate financial instruments |
(3,956) |
3,956 |
— |
— |
|
|
|
|
|
December 31, 2007 |
|
|
|
|
Variable rate financial instruments |
—* |
—* |
— |
— |
* Amount less than S$1,000. |
|
|
|
|
|
|
