MISC BERHAD - Annual Report 2014 p 286 35. Financial risk management objectives and policies The Group is exposed to various risks that are related to its core business of shipowning, ship operating, other shipping related activities and services, owning and operating of offshore facilities and marine repair, marine conversion and engineering and construction works. These risks arise in the normal course of the Group’s business. The Group’s Financial Risk Management Framework and Guidelines set the foundation for the establishment of effective risk management practices across the Group. The Group’s Financial Risk Management Policy seeks to ensure that adequate financial resources are available for the development of the Group’s businesses whilst managing its interest rate risk (both fair value and cash flow), foreign currency risk, liquidity risk, credit risk, equity price risk and bunker price risk. The Board reviews and agrees policies for managing each of these risks as summarised below. It is, and has been throughout the period under review, the Group’s policy that no speculative trading in derivative financial instruments shall be undertaken. The following sections provide details regarding the Group and the Corporation’s exposure to the above-mentioned financial risks and the objectives, policies and processes in place to manage these risks. (a) Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of the Group’s financial instruments will fluctuate because of changes in market interest rates. As the Group has no significant long term interestbearing financial assets, the Group’s income and operating cash flows are substantially independent of changes in market interest rates. The Group’s interest-bearing financial assets are mainly short term in nature and have been placed mostly in time deposits and overnight placements. The Group’s interest rate risk arises primarily from interest-bearing loans and borrowings. Borrowings at floating rates expose the Group and the Corporation to cash flow interest rate risk. The Group’s interest rate risks arise from the volatility of the benchmark interest rates both in Ringgit Malaysia (“RM”) and United States Dollar (“USD”), (which are its main borrowing currencies). The Group manages its interest rate exposure by maintaining a mix of fixed and floating rate borrowings. As at 31 December 2014, 6.44% (2013: 42.7%) of the Group’s total borrowings were fixed rate in nature. The Group had during the year raised USD1.55 billion of floating rate borrowing to refinance a maturing fixed rate USD700 million Guaranteed Notes and RM1,300 million fixed rate Islamic Medium Term Notes. The Group actively monitors the Interest Rate Swap (“IRS”) market to convert some of its floating rate borrowings into fixed rate borrowings at a time most advantageous to the Group. NOTESTOTHE FINANCIAL STATEMENTS - 31 December 2014
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