Basic HTML Version
Glorious Property
108
Annual Report 2011
Notes to the Consolidated Financial Statements
(Continued)
31 December 2011
3 Financial Risk Management
(Continued)
(a) FINANCIAL RISK FACTORS
(Continued)
(ii) Interest rate risk
As the Group has no significant interest-bearing assets except for the cash at bank and certain bank deposits, the
Group’s income and operating cash flows are substantially independent of changes in market interest rates. The
Group’s receivables that carry at fixed interest rates may expose the Group to fair value interest rate risk.
The Group’s exposures to changes in interest rates are mainly attributable to its borrowings (note 20). Borrowings
issued at variable rates expose the Group to cash flow interest rate risk. Borrowings issued at fixed rates exposed
the Group to fair value interest rate risk. The Group has not used any interest rate swaps to hedge its exposure to
interest rate risk.
The Group analyses its interest rate exposure on a dynamic basis and will consider the interest rate exposure when
entering into any refinancing, renewal of existing positions and alternative financing transactions. As any reasonable
changes in interest rate would not result in a significant change in the Group’s results, no sensitivity analysis is
presented for interest rate risk.
(iii) Price risk
The Group is not exposed to material equity securities price risk and commodity price risk as the Group has no
investments in securities that are exposed to price risk.
(iv) Credit risk
Credit risk is managed on a group basis. The Group’s credit risk arises from cash deposits, trade and other
receivables and loan to a jointly controlled entity. Management has policies in place to monitor the exposures to
these credit risks on an on-going basis.
For banks and financial institutions, deposits are only placed with reputable banks. For credit exposures to
customers, generally, the Group requires full payment from customers before delivery of properties. Credit terms
are only granted to customers for very rare cases upon obtaining approval from the Company’s senior management
after assessing the credit history of those customers. The Group has set out policies to ensure follow-up action is
taken to recover overdue debts and the Group reviews regularly the recoverable amount of each individual trade
and other receivable to ensure that adequate impairment losses are made for irrecoverable amounts.
Loan to a jointly controlled entity is generally supported by the underlying assets and the Group monitors the
credibility of jointly controlled entity continuously.
The Group has arranged bank financing for certain purchasers of the Group’s properties and provided guarantees to
secure obligations of such purchasers for repayments. Detailed disclosure of these guarantees is made in note 37.