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Corporate Governance
& Sustainability
41
CRCT Group will continue to review
its risk management systems and
methodologies so as to proactively
manage risks, preserve capital and
enhance Unitholders’ value. The
Manager’s key risk management
principle remains its endeavour to
optimise risk-reward relationship.
The potential key risks include the
following but are not limited to:
Political and Policy Risk
CRCT Group’s property and
investments are mainly in China,
which are prone to experience
political risks such as political
leadership uncertainty, inconsistency
in public policies, social unrest
and etc. Such risks could result in
the deterioration of the economic
or social conditions and affect
the financial viability of CRCT’s
investments or even the control
of assets in these countries. To
mitigate these risks, local operations
are run by experiencedmanagement
team supported by local team
who are both familiar with the local
conditions and culture.
Property Risk
Real estate markets are cyclical and
significantly affected by global and
local conditions, such as government
regulations, demand and supply,
competition and consumer
confidence. Stress testing and
scenario analyses are performed, and
all financial assumptions of project
cash flows are benchmarked to
ensure forecasts are objective.
Foreign Exchange Risk
As CRCT Group’s property and
investments are largely in China,
it is exposed to Chinese Renminbi
(RMB) flutuation against SGD which
is the distribution pay out currency.
As much as possible, CRCT Group
maintains a natural hedge, by
borrowing in RMB that match the
revenue stream generated from its
investments. For non-RMB
denominated term loans, CRCT
Group will hedge these loans into
RMB loans through non deliverable
forwards so as to match its
underlying assets which are
denominated in RMB. In relation to
its overseas investments in foreign
subsidiaries whose net assets are
exposed to currency translation risk
and which are held for long term
investment purposes, the differences
arising from such translations are
captured under foreign currency
translation reserve. These translation
differences are reviewed and
monitored on a regular basis.
Interest Rate Risk
Some of CRCT Group’s existing debt
carry floating interest rates, and
consequently, the interest cost
to CRCT Group for such loans will
be subject to fluctuations in interest
rates. Interest rate risk exposure
relates mainly to these interest-
bearing borrowings. As part of CRCT
Group’s active capital management
strategies, it has entered into hedging
transactions to partially mitigate the
risk of such interest rate fluctuations
through the use of interest rate
swaps and/or fixed rate borrowings.
In addition, the exposure to interest
rate risk is further managed
through regular reviews with senior
management on the optimal mix of
fixed and floating rate borrowings.
Debt portfolio is reviewed on an
on-going basis, taking into account
the investment holding period and
nature of the assets. This strategy
allows CRCT Group to capitalise on
cheaper funding in a low interest
rate environment and achieve a
certain level of protection against
rate fluctuations.
Credit Risk
Credit risk is the potential volatility in
earnings caused by tenants’ failure
to fulfill their contractual lease
payment obligations, as and when
they fall due. There is a stringent
collection policy in place to ensure
that credit risk is minimised. In
addition to the requirement for
upfront payment of security deposit
of an amount approximating three
months’ rent on average (which
may be lodged in the form of cash
or bankers’ guarantee), CRCT Group
also established vigilant monitoring
and debt collection procedures.
Financial Instruments
Speculative derivative transactions
are prohibited by internal policy.
While there is a need to balance
hedging as a means to manage
foreign exchange risk and/or interest
rate risk, CRCT Group controls
the use of financial instruments
by setting internal guidelines on
permissible hedging instruments.
Permitted hedging instruments
include spot and forward contracts,
currency swaps and interest rate
swaps. Illiquid hedging instruments
are avoided.
Liquidity and Refinancing Risk
CRCT Group actively monitors its debt
maturity profile, operating cash flows
and the availability of funding so as to
ensure sufficient funds are available
to meet its capital, refinancing and
operating needs. To manage liquidity
risk, CRCT Group maintains adequate
levels of cash to meet its working
capital obligations. In addition,
CRCT Group maintains available
banking facilities at reasonable level
to its overall debt position. CRCT
Group has access to debt market
through its MTN programe, to raise
funds for acquisition, development
and refinancing maturing debt.
Our ability to raise funds from both
banks and capital markets has
enabled us to diversify our sources
of funding to avoid over-reliance on
any single source of funding.