27. CAPITAL AND FINANCIAL RISK MANAGEMENT
Capital management
The Group’s objectives when managing capital are to optimise Unitholders’ value through the
mix of available capital sources which include debt and equity instruments whilst complying with
statutory and constitutional capital and distribution requirements, maintaining aggregate
leverage and interest service coverage ratios within approved limits. As a key part of the Group’s
overall strategy, the Board of the Manager reviews the Group and the Trust’s debt and capital
management cum financing policy regularly so as to optimise the Group and the Trust’s funding
structure. The Board also monitors the Group and the Trust’s exposure to various risk elements
by closely adhering to clearly established management policies and procedures.
The Group is subject to the aggregate leverage limit as defined in Appendix 6 of the CIS Code
(“Property Fund Appendix”). The Property Fund Appendix stipulates that the total borrowings
and deferred payments (together, the “Aggregate Leverage”) of a property fund should not
exceed 35.0% of its Deposited Property except that the Aggregate Leverage of a property fund
may exceed 35.0% of its Deposited Property (up to a maximum of 60.0%) if a credit rating of the
property fund from Fitch Inc., Moody’s or Standard and Poor’s is obtained and disclosed to the
public. The Group’s aggregate leverage limit did not exceed 35.0% during the year, and was
28.7% (2013: 32.6%) as at 31 December 2014. In computing the aggregate leverage, the Trust
has considered the effect of hedging the net assets denominated in RMB.
There were no changes in the Group’s approach to capital management during the financial
year.
Financial risk management
Overview
The Group’s returns are primarily from net operating income and capital appreciation of its
assets. However, these returns are exposed to financial risks including credit, liquidity, interest
rate and foreign currency risks.
Financial risk management is integral to the whole business of the Group. The Group adopts an
integrated approach to manage the financial risks arising in the normal course of the Group’s
business. The Group has written risk management policies and guidelines, and established
processes to monitor and manage significant exposures. Risk management policies and
processes are reviewed regularly to reflect changes in market conditions and the Group’s
activities.
The Group adheres to standardised accounting and financial policies and exercises effective
controls over the financial affairs of its subsidiaries. This is achieved by ensuring group-wide
adherence to a comprehensive set of guidelines covering contracts, policies and procedures
and other requirements. Adequate measures are in place to ensure that the reliability and
integrity of financial information compiled from subsidiaries are kept intact.
Credit risk
While it is necessary to assume a certain level of tenant credit risks to remain competitive in
China, the Group has established credit limits for tenants and monitors their balances on an
ongoing basis. Risks associated with credit limits are reflected in the level of security deposits
and bank guarantees placed as collateral in respect of the leases. Appropriate risk mitigating
actions are in place to manage trade receivables.
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