NOTES TO
FINANCIAL STATEMENTS
December 31, 2015
81
CITIC ENVIROTECH LTD.
Annual
Report
2015
4 FINANCIAL INSTRUMENTS, FINANCIAL RISKS AND CAPITAL RISKS
MANAGEMENT (cont’d)
(d)
Financial risk management policies and objectives (cont’d)
(ii)
Interest rate risk management
The Group is exposed to interest rate risks as the Group borrows funds at both fixed
and floating interest rates. The risk is managed by the Group by maintaining an
appropriate mix between fixed and floating rate borrowings. The Group currently does
not have an interest rate hedging policy. However, management monitors interest rate
exposure and will consider restructuring the Group’s credit facilities should the need
arise.
The Group’s exposures to interest rates on financial liabilities are detailed in the liquidity
risk management set out below.
Interest rate sensitivity
The sensitivity analyses below have been determined based on the exposure to
interest rates for non-derivative instruments at the end of the reporting period. For
variable-rate bank borrowings, the analysis is prepared assuming the amount of liability
outstanding at the end of the reporting period was outstanding for the whole year. A
50 basis point increase or decrease is used when reporting interest rate risk internally to
key management personnel and represents management’s assessment of the possible
change in interest rates.
If interest rate had been 50 basis points higher/lower and all other variables were held
constant, the Group’s profit for the year ended December 31, 2015 would decrease/
increase by $2,129,000 (March 31, 2015 : decrease/increase by $1,097,000). This
is mainly attributable to the Group’s exposure to interest rates on its variable rate
borrowings.
The Group’s sensitivity to interest rates has increased during the current period mainly
due to the increase in variable rate bank loans and the loan principal amounts.
(iii) Credit risk management
Credit risk refers to the risk that counterparty will default on its contractual obligations
resulting in financial loss to the Group. The Group has adopted a policy of only dealing
with creditworthy counterparties and obtaining sufficient collateral where appropriate,
as a means of mitigating the risk of financial loss from defaults. This information is
supplied by independent rating agencies where available and, if not available, the Group
uses other publicly available financial information and its own trading records to rate its
major customers. The Group’s exposure and the credit ratings of its counterparties are
continuously monitored and the aggregate value of transactions concluded is spread
amongst approved counterparties. Credit exposure is controlled by the counterparty
limits that are reviewed and approved by management. For the financial year ended
December 31, 2015, there was no single customer of the Group which accounts for
more than 10% of the Group’s revenue. For the financial year ended March 31, 2015, the
largest customer of the Group accounted for approximately 30% of the Group’s revenue.
Other than this customer, there was no significant concentration of credit risk given
to any single customer or group of customers. Management has assessed the credit
worthiness of the third party and believed that the credit risk associated with this loan is
minimum.
