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EC World Real Estate Investment Trust ANNUAL REPORT 2016
NOTES TO THE
Financial Statements
For the Financial Year ended 31 December 2016
23. Financial risk management
Financial risk factors
The Group’s activities expose it to market risk (including currency risk and interest rate risk), credit risk and liquidity
risk. The Group’s overall risk management strategy seeks to minimise any adverse effects from the unpredictability
of financial markets on the Group’s financial performance. The Group uses financial instruments such as currency
forwards, interest rate swaps and borrowings denominated in the respective entities’ functional currency to manage
certain financial risk exposures.
Risk management is carried out under policies approved by the Board of Directors of the Manager. The Manager
provides written principles for overall risk management as well as written policies covering specific areas, such as
interest rate risk, credit risk and liquidity risk. Risk management policies and systems are reviewed regularly to reflect
changes in market conditions and Group’s activities.
(a) Market risk
(i)
Currency risk
The Group’s portfolio of properties is located in PRC, held via special purpose vehicles incorporated
in PRC and the cash flows from the operation of the Properties is denominated in RMB. The PRC’s
special vehicles are held by holding companies in Singapore, which are in turn held by ECW. ECW
will pay distributions in Singapore dollars. These various levels of shareholding expose ECW to
fluctuations in the currency rates of RMB and SGD. In order to manage the currency risk involved in
the investment of assets outside Singapore, the Manager will adopt strategies that may include:
•
the use of borrowings denominated in the respective entities’ functional currency to match the
currency of the investment asset as a natural currency hedge;
•
entering into cross currency interest rate swaps that are used to reduce the Group’s exposure to
currency risk on its borrowings and interest; and
•
entering into currency forward contracts or currency options to manage the foreign currency
income received from the offshore assets, back into Singapore Dollars.