111 / 132
109
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 (continued)
(a) Market risk (continued)
(ii)
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. As the Group has
no significant interest-bearing assets, the Group’s income is substantially independent of changes in
market interest rates.
The Group’s interest rate risk arises from its borrowings which bear floating interest rates. Borrowings
at variable rates expose the Group to cash flow interest rate risk. The Manager endeavours to utilise
interest rate hedging strategies where appropriate from time to time to ensure stable returns to
Unitholders.
The Manager will adopt prudent and proactive interest rate management strategies including interest
rate swaps with reputable banks to manage the risk associated with changes in interest rates on
the loan facilities while ensuring that ECW’s on-going cost of debt capital remains reasonable and
continues to create value to the returns to Unitholders.
As at the reporting date, the interest rate profile of the interest-bearing financial instruments was:
Group
ECW
Carrying amount
Carrying amount
2016
2015
2016
2015
S$’000
S$’000
S$’000
S$’000
Variable rate instruments
– Onshore borrowings
208,964
267,140
–
–
– Offshore borrowings
200,000
–
200,000
–
– Interest rate swaps
100,000
–
100,000
–
508,964
267,140
300,000
–
The Group uses interest rate swaps to manage its exposure to interest rate movements on its floating
rate interest-bearing term loan by swapping the interest expense on a proportion of the term loan
from floating rates to fixed rates (Note 12).
A change in the interest rate at the reporting date would have an impact on the total return. If the
interest rates increase/decrease by of 25 (2015: 25) basis points (“bp”) at the reporting date, the total
return would be lower/higher by S$772,000 (2015: S$668,000). This analysis assumes that all other
variables, in particular foreign currency rates, remain constant.