Page 18 - TreasuryChinaTrust

Treasury China Trust Annual Report 2010 79

NOTES TO THE FINANCIAL STATEMENTS

Period from 19 May 2010 (date of constitution) to 31 December 2010

26 Financial risk management (Continued)

(a) Credit risk (Continued)

Trade receivables relate mainly to the Group’s tenants. The Group’s exposure to credit risk is influenced by the individual characteristics of each tenant. Customers are grouped according to their trade/business e.g. retail, office, mixed use. Receivables are reviewed monthly. There are no significant concentrations of credit risk with a single customer as the Group has a large number of tenants who pay their rentals in advance and some properties are rented subject to deposits, so that in the event of non-payment the Group has recourse to this deposit. The Group establishes an allowance for impairment that represents its estimate of incurred losses in respect of trade and other receivables, if required.

The carrying amount of financial assets represents the maximum credit exposure.

(b) Liquidity risk

Liquidity risk

Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are to be settled by delivering cash or another financial asset. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation.

The Trustee-Manager monitors and maintains a level of cash and cash equivalents deemed adequate by management to finance the Group’s operations and to mitigate the effects of fluctuations in cash flows.

The following are the contractual maturities of financial liabilities, including interest payments and excluding the impact of netting agreements:

Cash flows Carrying amount

Contractual cash flows

Within 1 year

Within 1 to 5 years $’000 $’000 $’000 $’000 Group

31 December 2010

Non-derivative financial liabilities

Interest-bearing borrowings (656,458) (769,750) (32,770) (736,980) Trade and other payables (64,822) (64,822) (64,822) –

(721,280) (834,572) (97,592) (736,980)

Trust

31 December 2010

Trade and other payables (4,478) (4,478) (4,478) –

(c) Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Group’s income and its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters while optimising the return on risk. Market risk is managed through established policies and guidelines. These policies and guidelines are reviewed regularly taking into consideration changes in the overall market environment.

The Group buys and sells derivatives, and also incurs financial liabilities, in order to manage market risks.