26. FINANCIAL RISK MANAGEMENT (continued) Financial risk factors (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. The Group’s interest-bearing assets do not generate significant amount of interest, changes in market interest rates do not have significant direct impact to the Group. The Group’s interest rate risk arises from its borrowings which bear variable interest rates (Note 18). 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 and cross currency 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. 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). As at the reporting date, the interest rate profile of the interest-bearing financial instruments was: Group 2024 2023 S$’000 S$’000 Variable rate borrowings – Onshore borrowings 134,573 136,607 – Offshore borrowings 347,396 344,247 – Revolving credit facilities – 82,300 481,969 563,154 Hedging instruments – Interest rate swaps – (107,000) – Cross currency interest rate swaps – (72,523) Net exposure to interest rate risk 481,969 383,631 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 25 (2023: 25) basis points (“bp”) at the reporting date, the total return would be lower/higher by S$1,204,000 (2023: S$960,000). This analysis assumes that all other variables, in particular foreign currency rates, remain constant. ECW does not have significant interest-bearing assets and liabilities. Hence, ECW’s subject to insignificant interest risk. ANNUAL REPORT 2024 115 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2024
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