MISC Annual Report 2019

37. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONT’D.) (a) Interest rate risk (cont’d.) As at reporting date, the total notional principal amount of interest rate swaps of the Group is RM7,581,251,000 (2018: RM1,815,371,000). The fixed interest rates relating to interest rate swaps at the reporting date ranges from 1.79% - 3.19% (2018: 1.90% - 3.19%) per annum. The following table demonstrates the sensitivity to a reasonably possible change in interest rates, with all other variables held constant, of the Group’s and the Corporation’s profit before taxation and equity via floating rate borrowings and interest rate swaps respectively. Effect on Effect on profit other Increase/ before comprehensive (Decrease) taxation income in LIBOR (Decrease)/ (Decrease)/ basis points Increase Increase RM’000 RM’000 As at 31 December 2019 Group USD - 3 Months LIBOR +70 (33,627) (204,136) USD - 3 Months LIBOR -70 33,627 204,136 Corporation USD - 3 Months LIBOR +70 (10,561) – USD - 3 Months LIBOR -70 10,561 – As at 31 December 2018 Group USD - 3 Months LIBOR +50 (54,435) 2,713 USD - 3 Months LIBOR -50 54,435 (2,713) Corporation USD - 3 Months LIBOR +50 (25,006) – USD - 3 Months LIBOR -50 25,006 – As at 31 December 2019, the Group’s and the Corporation’s exposure to the risk of changes in market interest rate relates primarily to the Group’s and the Corporation’s placement of deposits with licensed banks, cash and bank balances, loans to subsidiaries and associate, interest-bearing loans and borrowings and loans from subsidiaries. 37. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONT’D.) (a) Interest rate risk (cont’d.) The interest-bearing financial instruments of the Group and of the Corporation based on carrying amount, as at reporting date were as follows: Group Corporation 2019 2018 2019 2018 RM’000 RM’000 RM’000 RM’000 Fixed rate instruments Financial assets Deposits with licensed banks 1,561,907 336,394 13,933 20,888 Deposits with IFSSC 4,355,497 4,204,421 2,803,030 1,936,876 Loans to subsidiaries – – 988,376 1,077,142 Financial liabilities Fixed rate borrowings 178,871 50,000 – – Floating rate borrowings (swapped to fixed rate) 7,581,251 1,815,371 – – Loans from subsidiaries – – 113,099 395,987 Floating rate instruments Financial assets Cash and bank balances 1,113,410 1,214,789 86 55 Loans to subsidiaries – – 671,527 1,290,761 Financial liabilities Floating rate borrowings 4,753,937 11,184,535 755,128 763,416 Loans from subsidiaries – – 737,910 5,137,967 (b) Foreign currency risk The currencies giving rise to this risk are primarily RM and USD. Approximately 4% (2018: 7%) and 4% (2018: 5%) of the Group’s and the Corporation’s revenue are denominated in currency other than the currency of the primary economic environment which the entities operate. Approximately 1% (2018: 4%) and 12% (2018: 4%) of the Group’s and the Corporation’s cost of sales are denominated in currency other than the currency of the primary economic environment which the entities operate. The Group maintains a natural hedge, wherever possible, by borrowing in currencies that matches the future revenue streams to be generated from its investments. During the current financial year, the Group held forward currency contracts designated as hedges of expected future payments denominated in United States Dollar. The forward currency contracts are being used to hedge the foreign currency risk of the highly probable forecasted transactions. The cash flow hedges of the expected future receipts which are expected to occur within the next 12 months, were assessed to be highly effective and a net unrealised loss of RM1,560,000 (2018: RMNil), which represents the effective portion of the hedging relationship, is included in the other comprehensive income. NOTES TO THE FINANCIAL STATEMENTS 31 December 2019 NOTES TO THE FINANCIAL STATEMENTS 31 December 2019 FINANCIAL STATEMENTS MISC BERHAD PEOPLE. PASSION. POSSIBILITIES ANNUAL REPORT 2019 350 351