Page 51 - ar2013

Corporate Governance
& Sustainability
level before they are presented
to the AC.
CMT Group effectively manages
its risk by maintaining a prudent
risk profile through a risk analysis
framework that seeks to identify,
measure and mitigate any key
risk where possible. CMT Group
strives to achieve an optimised
risk-return relationship and ensure
that stakeholders’ interests and
value are protected.
The Manager will continue to review
the risk management systems and
methodologies so as to proactively
manage risks, preserve capital and
enhance Unitholders’ value. The
Manager’s key risk management
principle remains its endeavour to
optimise risk-reward relationship.
The potential key risks include but
are not limited to:
Key Risks & Control Measures
Operational Risk
To mitigate and manage operational
risk, the Manager has integrated
risk management into the
day-to-day activities across all
functions. Measures include the
establishment of planning and
control systems, group-wide
policies, information technology
systems, and operational reporting
and monitoring procedures which
are overseen by the Executive
Committee and the Board. The risk
management system is regularly
monitored and examined to ensure
continuing effectiveness. The risk
management framework is designed
to ensure appropriate processes
and procedures are in place to
prevent, mitigate and manage any
operational risk.
Investment Risk
The main sources of growth
for CMT Group are asset
enhancement initiatives (AEI),
acquisition of properties as
well as investment in greenfield
developments. The risks involved
in such investment activities are
managed through a rigorous set of
investment criteria which includes
potential for growth in yield, rental
sustainability and potential for
value creation. Also, key financial
projection assumptions are
reviewed and sensitivity analysis
performed on key variables. The
potential risks associated with
proposed projects and the issues
that may prevent their smooth
implementation or attainment of
projected outcomes are identified
at evaluation stage. This is to
enable the Manager to devise
action plans to mitigate such risks
as early as possible.
Interest Rate Risk
CMT Group’s exposure to
fluctuations in interest rates relates
primarily to interest-bearing
financial liabilities. Interest rate risk
is managed on an ongoing basis,
and with the primary objective
of minimising the impact on net
interest expense that is caused by
adverse movements in interest rates.
Hence, the Manager proactively
seeks to minimise the level of
interest rate risk by locking
in most of the borrowings of the
CMT Group at fixed interest rates.
As at 31 December 2013, the risk
is minimal as majority of CMT Group’s
borrowings are either on fixed rate
basis or have been swapped into
Singapore Dollar fixed rates.
Currency Risk
As the assets of CMT Group are
currently based in Singapore,
there is little or no foreign exchange
exposure from its operations.
CMT borrows in Singapore Dollars
from its wholly-owned subsidiary,
CMT MTN Pte. Ltd. (CMT MTN).
CMT MTN provides treasury
services to CMT, including the
on-lending of proceeds from notes
issued under the S$2.5 billion
unsecured Multicurrency Medium
Term Note Programme (MTN
Programme), and the US$3.0 billion
unsecured Euro-Medium Term Note
Programme (EMTN Programme).
RCS Trust, in which CMT has
a 40.00% interest, borrows in
Singapore Dollars from a special
purpose vehicle, Silver Oak Ltd
(Silver Oak). Silver Oak issued
foreign currency denominated notes
at floating rates at attractive spreads
by borrowing from the overseas
markets. They were swapped into
fixed rates and Singapore Dollars.
Credit Risk
Credit risk is the potential volatility
in earnings caused by tenants’
failure to fulfill their contractual
lease payment obligations, as
and when they fall due. There is
a stringent collection policy in
place to ensure that credit risk
is minimised. In addition to the
requirement for upfront payment
of security deposit of an amount
typically equivalent to three
months’ rent (which may be
lodged in the form of cash or
bankers’ guarantee), the Manager
also establishes vigilant debt
monitoring and collection
procedures. Debt turnover of
CMT Group were 1.4 days and
1.2 days for 31 December 2013 and
31 December 2012 respectively.
Liquidity Risk
The Manager actively monitors the
cash flow position of CMT Group to
ensure that there are sufficient liquid
reserves, in the form of cash and
banking facilities, to finance CMT
Group’s operations and AEI. The
Manager also monitors covenants
closely to ensure compliance.
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