NOTES TO THE FINANCIAL STATEMENTS
For the financial year ended 31 December 2014
Financial Statements
136
COSCO Corporation (Singapore) Limited
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 fair 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% (2013: 0.5%) with all other variables including tax rate being held constant,
the profit after tax will be lower/higher by Nil (2013: $465,000) and $15,577,000 (2013:
$7,946,000) 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 (2013: 4 vessels) valued at US$78,000,000
(2013: US$100,000,000) to secure its outstanding trade receivables of US$6,400,000 (2013:
US$6,400,000) as at 31 December 2014. 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, trade receivables
(including amount due from customer on construction contracts) and other receivables (including
loan to an associated company, staff advances, and dividend receivable from associated
companies).
