MSM Malaysia Holdings Berhad Annual Report 2020

4 FINANCIAL RISK MANAGEMENT (CONTINUED) (a) Financial risk management policies (continued) Fixed deposits and bank balances The Group seeks to invest in its cash assets safely by depositing them with licensed financial institutions. The Group’s bank and cash balances were largely placed with major financial institutions in Malaysia. The Directors are of the view that the possibility of non-performance by these financial institutions, including those non-rated financial institutions, is remote on the basis of their financial strength. Inter-company balances The Company provided unsecured loans to subsidiaries. The Company monitors the results of the subsidiaries regularly. As at the end of the reporting period, the maximum exposure to credit risk is represented by their carrying amounts in the statement of financial position and there was no indication that the loans to the subsidiaries are not recoverable. Liquidity risk Liquidity risk is the risk that the Group will encounter difficulties in meeting obligations due to shortage of funds. The Group maintains a sufficient level of cash and cash equivalents to meet the Group’s working capital requirements by closely monitoring its cash flows. Due to the nature of its business, the Group has adopted prudent liquidity risk management in maintaining and obtaining sufficient credit facilities from financial institutions. Cash flow forecasting is performed in the operating entities of the Group and then aggregated by management. Management monitors rolling forecasts of the Group’s liquidity requirements to ensure it has sufficient cash to meet operational needs while maintaining sufficient headroom on its undrawn committed borrowing facilities at all times so that the Group does not breach borrowing limits or covenants (where applicable) on any of its borrowing facilities. Such forecasting takes into consideration the Group’s debt financing plans, covenant compliance, compliance with internal statements of financial position ratio targets and, if applicable, external regulatory or legal requirements – for example, currency restrictions. As at 31 December 2020, the Group has no undrawn committed borrowing facilities (2019: RM Nil). Based on the term sheet and consent letters obtained from its lender, financial covenants shall be computed based on the Group’s consolidated annual audited financial statement for the financial year ended 31 December 2021 onwards. The Company plans to manage its liquidity risk by receiving income in the form of dividends and management fees from its subsidiaries, to meet its obligations over the next twelve months. The Company also plans to meet the covenants requirement for the financial year ending 31 December 2021 by monetising its non-core assets. Surplus cash is invested in profit bearing current accounts, time deposits, money market deposits and marketable securities, choosing instruments with appropriate maturities or sufficient liquidity to provide sufficient headroom as determined by the above-mentioned forecasts. At the reporting date, the Group held cash investments of RM127,748,000 (2019: RM143,652,000) and other liquid assets of RM68,173,000 (2019: RM26,884,000) that are expected to readily generate cash inflows for managing liquidity risk. At the reporting date, the Company held cash investments of RM16,688,000 (2019: RM29,282,000) and other liquid assets of RM3,672,000 (2019: RM5,071,000) that are expected to readily generate cash inflows for managing liquidity risk. MSM MALAYSIA HOLDINGS BERHAD Annual Repor t 2020 169 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2020 SUSTAINABILITY REPORT EFFECTIVE LEADERSHIP CORPORATE GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION DETAILS OF THE ANNUAL GENERAL MEETING