Notes to the Consolidated Financial Statements
For the year ended 31 December 2010
Financial risk management objectives and policies (continued)
Market risk (continued)
Other price risk
The Group’s listed available-for-sale investments, held-for-trading investments and embedded derivatives in investment in convertible bonds are measured at fair value at the end of the reporting period. Therefore, the Group is exposed to equity price risk in relation to these financial assets. In order to mitigate such risk, the Group would monitor the price risk and will consider hedging the risk exposure should the need arise.
Other price sensitivity
The sensitivity analysis below has been determined based on the exposure to equity price risks at the reporting date.
If the prices of the listed available-for-sale investments and held-for-trading investments had been 10% (2009: 10%) higher/lower:
profit before tax for the year ended 31 December 2009 would increase/decrease by HK$12,030,000 as a result of the changes in fair value of listed financial assets carried at FVTPL; and
investment revaluation reserve would increase/decrease by HK$8,388,000 (2009: deficit in investment revaluation reserve would decrease/increase by HK$806,327,000) for the Group as a result of the changes in fair value of listed available-for-sale investments.
If the volatility of unit price of Champion REIT to the valuation model of embedded derivatives in investment in convertible bonds had been 5% (2009: 5%) higher/lower while all other variables were held constant, the profit before tax for the year ended 31 December 2010 would increase/decrease by HK$17,156,000/ HK$17,605,000 (2009: increase/decrease by HK$39,562,000/HK$61,939,000) as a result of the changes in fair value of embedded derivatives in investment in convertible bonds.
(b) Liquidity risk
In the management of the liquidity risk, the Group monitors and maintains a level of cash and cash equivalents deemed adequate by the management to finance the Group’s operations and mitigate the effects of fluctuations in cash flows. The management monitors the utilisation of bank borrowings and ensure compliance with loan covenants.
During the year ended 31 December 2009, in respect of floating-rate bank loans with aggregate carrying amounts of HK$845,557,000 at the end of the reporting period, the Group did not meet certain requirements of the loan facility which are primarily related to the debt service coverage ratios. Accordingly, the Group placed HK$61,521,000 into designated bank account and no immediate repayment of the bank loan was required.
Great Eagle Holdings Limited