MISC Integrated Annual Report 2020

38. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONT’D.) (c) Liquidity risk (cont’d.) Group Hedging activities The Group entered into IRS to hedge the cash flow risk of floating interest rate on the term loans. The notional amount swapped as at 31 December 2020 was RM10.2 billion (2019: RM7.6 billion). The swaps are settled quarterly, consistent with the interest payment schedule of the loan. The following table indicates the periods in which the cash flows are expected to occur for cash flow hedges as at 31 December 2020 and 31 December 2019: Carrying Contractual Within More than More than More than More than More than amount cash flows 1 year 1 - 2 years 2 - 3 years 3 - 4 years 4 - 5 years 5 years RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 At 31 December 2020 Net cash outflows (538,697) (1,159,498) (152,970) (144,986) (136,483) (136,857) (136,483) (451,719) At 31 December 2019 Net cash outflows (159,920) (229,280) (23,895) (23,830) (22,666) (21,340) (21,398) (116,151) The Group’s hedging activities on the IRS are tested to be effective. During the year, the Group recognised in other comprehensive income a loss of RM378,011,000 (2019: loss of RM161,848,000) on the IRS of its subsidiaries due to market expectation of lower floating rates in comparison to the fixed rate under the IRS arrangements. The Group’s share of its joint ventures’ in other comprehensive income a loss on IRS during the year was RM58,682,000 (2019: RMNil) due to market expectation of lower floating rates in comparison to the fixed rate under the IRS arrangements. (d) Credit risk Credit risk is the risk of loss that may arise on outstanding financial instruments should a counterparty default on its obligations. The Group’s exposure to credit risk arises primarily from its operating activities (mainly trade receivables and finance lease receivables) and from its investing activities, including deposits with banks and financial institutions, foreign exchange transactions and other financial instruments. At the reporting date, the Group’s maximum exposure to credit risk is represented by the carrying amount of each class of financial assets mentioned in Notes 20(a), 22 and 24, and is recognised in the statements of financial position. 38. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONT’D.) (d) Credit risk (cont’d.) Receivables and contract assets The Group and the Corporation determine concentrations of credit risk by monitoring the industry sector profile of their receivables on an ongoing basis. The credit risk concentration profile of the Group’s and the Corporation’s trade receivables due from third parties at the reporting date are as follows: Group Corporation 2020 2019 2020 2019 RM’000 RM’000 RM’000 RM’000 LNG Asset Solutions 152,155 168,031 155,545 144,919 Petroleum & Product Shipping 151,403 331,406 – – Offshore Business 1,133,410 1,126,964 12,385 17,150 Marine & Heavy Engineering 244,192 313,792 – – Others 8,868 21,696 – – 1,690,028 1,961,889 167,930 162,069 At reporting date, approximately 3.1% (2019: 2.6%) and 55.7% (2019: 83.8%) of the Group’s and the Corporation’s trade and other receivables were due from related parties. The Group and the Corporation perform credit rating assessment of all its counterparties in order to measure ECL of trade receivables for all segments using the PETRONAS Credit Risk Rating System. This credit rating assessment considers quantitative assessment using the counterparties’ financial statements or a qualitative assessment of the counterparties, which includes but is not limited to their reputation, competitive position, industry and geopolitical outlook. In determining the ECL, the probability of default assigned to each counterparty is based on their individual credit rating. This probability of default is derived by benchmarking against available third party and market information, which also incorporates forward looking information. 31 December 2020 NOTES TO THE FINANCIAL STATEMENTS 31 December 2020 NOTES TO THE FINANCIAL STATEMENTS 10 444 10 445 /// 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