24 FINANCIAL RISK MANAGEMENT
Capital management
The Board of the Manager proactively reviews the Group’s and the Trust’s capital and debt
management and financing policy regularly so as to optimise the Group’s and the Trust’s funding
structure. Capital consists of Unitholders’ funds of the Group. The Board also monitors the
Group’s and the Trust’s exposure to various risk elements and externally imposed requirements
by closely adhering to clearly established management policies and procedures.
The Trust is subject to the aggregate leverage limit as defined in the Property Fund Appendix
of the CIS code. The CIS code stipulates that the total borrowings and deferred payments
(together the “Aggregate Leverage”) of a property fund should not exceed 35.0% of the fund’s
deposited property. The Aggregate Leverage of a property fund may exceed 35.0% of the fund’s
deposited property (up to a maximum of 60.0%) only if a credit rating of the property fund from
Fitch Inc., Moody’s or Standard and Poor’s is obtained and disclosed to the public. The property
fund should continue to maintain and disclose a credit rating so long as its Aggregate Leverage
exceeds 35.0% of the fund’s deposited property.
The Trust has been assigned an ‘A2’ issuer rating in March 2013. The Trust has complied with
the Aggregate Leverage limit of 60.0% during the financial year. There were no changes in the
Group’s and the Trust’s approach to capital management during the financial year.
Overview of risk management
Risk management is integral to the whole business of the Group. The Group has a system of
controls in place to create an acceptable balance between the cost of risks occurring and the
cost of managing the risks. The Manager continually monitors the Group’s risk management
process to ensure that an appropriate balance between risk and control is achieved. Risk
management policies and systems are reviewed regularly to reflect changes in market
conditions and the Group’s activities.
The Audit Committee oversees how the Manager monitors compliance with the Group’s risk
management policies and procedures and reviews the adequacy of the risk management
framework in relation to the risks faced by the Group. The Audit Committee is assisted in its
oversight role by Internal Audit. Internal Audit undertakes both regular and ad hoc reviews of
risk management controls and procedures, the results of which are reported to the Audit
Committee.
Credit risk
Credit risk is the potential financial loss resulting from the failure of a tenant or a counterparty
to settle its financial and contractual obligations to the Group, as and when they fall due.
The Manager has established credit limits for customers and monitors their balances on an
ongoing basis. Credit evaluations are performed by the Manager before lease agreements are
entered into with tenants.
The Manager establishes an allowance for impairment that represents its estimate of incurred
losses in respect of trade and other receivables. The main component of this allowance is a
specific loss component that relates to the individually significant exposure.
Notes to the Financial Statements
Year ended 31 December 2014
194 | CapitaMall Trust Annual Report 2014
