MISC Annual Report 2019

37. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONT’D.) (c) Liquidity risk (cont’d.) Group Hedging activities The Group entered into interest rate swaps to hedge the cash flow risk of floating interest rate on the term loans. The notional amount swapped as at 31 December 2019 was RM7,581,251,000 (2018: RM1,815,371,000). The swaps are settled quarterly, consistent with the interest payment schedule of the loan. The following table indicates the periods in which the cash flows are expected to occur for cash flow hedges as at 31 December 2019 and 31 December 2018: Carrying Contractual Within More than More than More than More than More than amount cash flows 1 year 1 - 2 years 2 - 3 years 3 - 4 years 4 - 5 years 5 years RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 At 31 December 2019 Net cash outflows (159,920) (229,280) (23,895) (23,830) (22,666) (21,340) (21,398) (116,151) At 31 December 2018 Net cash inflows 2,349 37,444 3,432 6,884 6,886 5,158 3,486 11,598 The Group’s hedging activities on the interest rate swaps are tested to be effective. During the year, the Group recognised in other comprehensive income a loss of RM161,848,000 (2018: loss of RM5,400,000) on the interest rate swaps of its subsidiaries. The Group’s share of its joint ventures’ unrealised gain on interest rate swap during the year was RMNil (2018: RM15,000). (d) Credit risk Credit risk is the risk of loss that may arise on outstanding financial instruments should a counterparty default on its obligations. The Group’s exposure to credit risk arises primarily from its operating activities (mainly trade receivables and finance lease receivables) and from its finance activities, including deposits with banks and financial institutions, foreign exchange transactions and other financial instruments. At the reporting date, the Group’s maximum exposure to credit risk is represented by the carrying amount of each class of financial assets mentioned in Notes 19(a), 21 and 23, and is recognised in the statements of financial position. 37. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONT’D.) (d) Credit risk (cont’d.) Receivables and contract assets The Group and the Corporation determine concentrations of credit risk by monitoring the industry sector profile of their receivables on an ongoing basis. The credit risk concentration profile of the Group’s and the Corporation’s trade receivables due from third parties at the reporting date are as follows: Group Corporation 2019 2018 2019 2018 RM’000 RM’000 RM’000 RM’000 LNG 168,031 116,687 144,919 121,577 Petroleum 331,406 449,761 – – Offshore 1,126,964 1,184,075 17,150 133,274 Heavy Engineering 313,792 210,844 – – Others 21,696 14,496 – – 1,961,889 1,975,863 162,069 254,851 At reporting date, approximately 2.6% (2018: 3.7%) and 83.8% (2018: 85.9%) of the Group’s and the Corporation’s trade and other receivables were due from related parties. The Group and the Corporation perform credit rating assessment of all its counterparties in order to measure ECLs of trade receivables for all segments using the PETRONAS Credit Risk Rating System. This credit rating assessment considers quantitative assessment using the counterparties’ financial statements or a qualitative assessment of the counterparties, which includes but is not limited to their reputation, competitive position, industry and geopolitical outlook. In determining the ECL, the probability of default assigned to each counterparty is based on their individual credit rating. This probability of default is derived by benchmarking against available third party and market information, which also incorporates forward looking information. NOTES TO THE FINANCIAL STATEMENTS 31 December 2019 NOTES TO THE FINANCIAL STATEMENTS 31 December 2019 FINANCIAL STATEMENTS MISC BERHAD PEOPLE. PASSION. POSSIBILITIES ANNUAL REPORT 2019 356 357