RISK MANAGEMENT
and the issues that may prevent their
smooth implementation are to be
identified at the evaluation stage. This
enables the Trust to determine actions
that need to be taken to manage or
mitigate risks as early as possible.
INTEREST RATE RISK
The Manager adopts a proactive
strategy to manage the risk associated
with changes in interest rates on any
loan facilities while seeking to ensure
that LMIR Trust’s ongoing cost of debt
capital remains competitive. As at 31
December 2015, more than 85% of
LMIR Trust borrowings had been locked
into fixed interest rates, through fixed
interest rate borrowings (Notes issued
under the Programmes) and entering
into interest rate swap contracts to
hedge against the floating interest rate
of the borrowings.
FOREIGN EXCHANGE RISK
LMIR Trust is subject to foreign
exchange exposure due to changes
in foreign exchange rates arising from
foreign currency transactions and
balances as well as changes in the fair
values from its investment in Indonesia.
The value of the Indonesian Rupiah was
affected by fluctuations in the past and
could be subject to fluctuations in the
future. The Manager has a policy to
undertake foreign exchange hedging of
the expected distributions of LMIR Trust
tominimize its exposure tomovements
in exchange rates.
The Trust has entered into foreign
exchange hedges based on LMIR Trust’s
estimated quarterly distributions, so
as to provide a degree of certainty
that changes in the exchange rate
between the Indonesian Rupiah and
the Singapore Dollar will not have
a significant negative impact on the
distributions in Singapore Dollar to
Unitholders.
CREDIT RISK
Credit risk relates to the potential
earnings volatility caused by tenants’
inability and/or unwillingness to fulfill
their contractual lease obligations. To
minimize the risk of tenant default on
rental payment, the Manager has put in
place standard operating procedures
for debt collection and recovery of
debts. These include the collection of
security deposits in the form of cash
or bankers guarantee and having
a monitoring system and a set of
procedures on debt collection.
LIQUIDITY RISK
The Manager actively monitors LMIR
Trust’s cash flow position so as to
ensure sufficient liquid reserves of cash
and credit facilities to meet short term
obligations. In addition, the Manager
also observes andmonitors compliance
with the Code on Collective Investment
Schemes issued by the Monetary
Authority of Singapore to govern limits
on total borrowings.
LIPPO MALLS INDONESIA RETAIL TRUST
34
