MSM Malaysia Holdings Berhad Annual Report 2019

NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2019 4 FINANCIAL RISK MANAGEMENT (CONTINUED) (a) Financial risk management policies (continued) Credit risk (continued) Fixed deposits and bank balances The Group seeks to invest in its cash assets safely by depositing them with licensed financial institutions. The Group’s bank and cash balances were largely placed with major financial institutions in Malaysia.The Directors are of the view that the possibility of non-performance by these financial institutions, including those non-rated financial institutions, is remote on the basis of their financial strength. Inter-company balances The Company provided unsecured loans to subsidiaries. The Company monitors the results of the subsidiaries regularly. As at the end of the reporting period, the maximum exposure to credit risk is represented by their carrying amounts in the statement of financial position and there was no indication that the loans to the subsidiaries are not recoverable. Liquidity risk Liquidity risk is the risk that the Group will encounter difficulties in meeting obligations due to shortage of funds. The Group maintains a sufficient level of cash and cash equivalents to meet the Group’s working capital requirements by closely monitoring its cash flows. Due to the nature of its business, the Group has adopted prudent liquidity risk management in maintaining and obtaining sufficient credit facilities from financial institutions. Cash flow forecasting is performed in the operating entities of the Group and then aggregated bymanagement. Management monitors rolling forecasts of the Group’s liquidity requirements to ensure it has sufficient cash to meet operational needs while maintaining sufficient headroom on its undrawn committed borrowing facilities at all times so that the Group does not breach borrowing limits or covenants (where applicable) on any of its borrowing facilities. Such forecasting takes into consideration the Group's debt financing plans, covenant compliance, compliance with internal statements of financial position ratio targets and, if applicable, external regulatory or legal requirements – for example, currency restrictions. As at 31 December 2019, the Group has no undrawn committed borrowing facilities (2018: RM Nil). As disclosed in Note 34 to the financial statements, the Company had revised its payment terms and financial covenants in respect of its Islamic term loan during the financial year ended 31 December 2019. Based on the revised term sheet, the revised financial covenants shall be computed based on the Group’s consolidated annual audited financial statements for the financial year ending 31 December 2020 onwards. The Company is also assessing various possibilities to negotiate the terms of the Islamic term loan with its lenders following the announcement by the Government of Malaysia on the moratorium repayment period in view of the Covid-19 pandemic, if necessary. In addition to amending the payment period of the Islamic term loan, the Company also plans to manage its liquidity risk by receiving income in the form of dividends and management fees from its subsidiaries, to meet its obligations over the next twelve months. 151 FINANCIAL STATEMENTS 08