MISC Integrated Annual Report 2020

37. FAIR VALUE DISCLOSURES (CONT’D.) Fair value information (cont’d.) Level 3 fair value measurements (cont’d.) The following table shows the information about fair value measurements using significant unobservable inputs within Level 3 of the fair value hierarchy: Group Corporation Fair value at Fair value at Fair value at Fair value at 31 December 31 December 31 December 31 December Valuation 2020 2019 2020 2019 techniques Unobservable inputs RM’000 RM’000 RM’000 RM’000 Assets measured at fair value Non-current assets held for sale - Ships and offshore floating assets 4,834 125,278 – – Market Transacted comparable ships comparable adjusted for the current condition approach of the assets/Sales price offered by potential buyers. Financial assets not measured at fair value Long term 93,775 96,453 – – Discounted Discounting expected future receivables cash flow cash flows applying market rate method of interest at the end of the reporting period. Finance lease receivables 14,331,388 15,364,445 809,877 1,016,558 Discounted Discounting expected future cash flow cash flows applying latest method estimated borrowing rate of the charterers. 14,425,163 15,460,898 809,877 1,016,558 An increase in market value of comparable assets used in the above valuation would result in an increase in the fair value and vice versa. 38. 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 and equity price risk. The Board of Directors 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’s 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 interest-bearing 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 to cash flow interest rate risk. The Group’s interest rate risks arise from the volatility of the benchmark interest rates in USD, which is the Group’s main borrowing currency. The Group manages its interest rate exposure by maintaining a mix of fixed and floating rate borrowings. As at 31 December 2020, 79.2% (2019: 62.0%) and 14.0% (2019: 7.0%) of the Group’s and the Corporation’s total borrowings were fixed rate in nature. To manage this mix in a cost-efficient manner, the Group enters into interest rate swaps in which the Group agrees to exchange at specified intervals, the difference between fixed and floating rate interest amounts calculated by reference to an agreed upon notional principal amount. 31 December 2020 NOTES TO THE FINANCIAL STATEMENTS 31 December 2020 NOTES TO THE FINANCIAL STATEMENTS 10 436 10 437 /// Leadership / Governance / Financial Statements / Additional Information / Annual General Meeting ////// /// Leadership / Governance / Financial Statements / Additional Information / Annual General Meeting ////// Section Section MISC Berhad / Integrated Annual Report 2020 MISC Berhad / Integrated Annual Report 2020