Page 136 - ar2013.pdf

NOTES TO THE FINANCIAL STATEMENTS
For the Ànancial year ended 31 December 2013
134
COSCO Corporation (Singapore) Limited
F i nanc i a l Statement s
34. Financial risk management (continued)
(a) Market risk (continued)
(ii) Price risk
The Group is not exposed to any significant equity securities price risk.
(iii) Cash flow and fair value interest rate risks
Cash flow interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate
because of changes in market interest rates. Fair value interest rate risk is the risk that the value
of a financial instrument will fluctuate due to changes in market interest rates. The Group has cash
balances placed with reputable banks and financial institutions which generate interest income for the
Group. The Group manages its interest rate risks by placing such balances on varying maturities and
interest rate terms.
The Group’s interest rate risk mainly arises from non-current borrowings. The Group monitors the
interest rates on borrowings closely to ensure that the borrowings are maintained at favourable rates
and will use derivative financial instruments to hedge their exposures when the exposure is significant.
The Group’s borrowings at variable rates on which effective hedges have not been entered into, are
denominated mainly in RMB and USD. If the RMB and USD interest rates increase/decrease by 0.5%
(2012: 0.5%) with all other variables including tax rate being held constant, the profit after tax will be
lower/higher by $465,000 (2012: $2,934,000) and $7,946,000 (2012: $6,594,000) respectively as a
result of higher/lower interest expense on these borrowings.
(b) Credit risk
Credit risk refers to the risk that a counter party will default on its contractual obligation resulting in financial
loss to the Group.
Concentrations of credit risk with respect to trade receivables are limited due to the Group’s large number of
customers who are internationally dispersed. Due to these factors, management believes that no additional
credit risk beyond the amount of allowance for impairment made is inherent in the Group’s and Company’s
trade receivables.
The Group has no significant concentrations of credit risk. The Group has policies in place to ensure that
sales of products and services are made to customers with an appropriate credit history.
A subsidiary in the Group obtained a pledge of 4 vessels (2012: 4 vessels) valued at US$100,000,000 (2012:
US$19,900,000) to secure its outstanding trade receivables of US$6,400,000 (2012: US$5,145,000) as at 31
December 2013. The pledge was secured under a second preferred mortgage issued by the debtor to the
subsidiary.
Other than the above-mentioned, the Group and Company do not hold any other collateral. The maximum
exposure to credit risk for each class of financial instruments is the carrying amount of that class of financial
instruments presented on the balance sheet.
The Group’s and Company’s major classes of financial assets are bank deposits and trade receivables.