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For our head office and non-financial subsidiaries, the interest rate risk arises primarily from debt.
Borrowings at floating rates expose CITIC Limited to cash flow interest rate risk, while borrowings at fixed
rates expose CITIC Limited to fair value interest rate risk. Based on its balance sheet and market conditions,
CITIC Limited and its non-financial subsidiaries will conduct analysis and sensitivity testing on interest rate
risk, adopt a flexible approach in choosing financing instruments at floating and fixed rates, or choose to
employ, at the suitable time, the interest rate swaps and other derivative instruments approved for use by
the ALCO to manage interest rate risk.
Details of interest rate risk management are set out in Note 32(c) to the consolidated financial statements.
2.
Currency risk
CITIC Limited has major operations in mainland China, Hong Kong and Australia, with Renminbi (“RMB”),
Hong Kong dollar (“HKD”) and United States dollar (“USD”) as functional currencies respectively. The
Group’s member companies are exposed to currency risk from gaps between financial assets and
liabilities, future commercial transactions and net investments in foreign operations that are denominated
in a currency that is not the member company’s functional currency. The reporting currency of the
consolidated financial statements of CITIC Limited is HKD. Translation exposures from the consolidation of
subsidiaries, whose functional currency is not HKD, are not hedged by using derivative instruments as no
cash exposures are involved.
CITIC Limited measures its currency risk mainly by currency gap analysis. Where it is appropriate, the Group
seeks to lower its currency risk by matching its foreign currency denominated assets with corresponding
liabilities in the same currency or using forward contracts and cross currency swaps, provided that hedging
is only considered for firm commitments and highly probable forecast transactions.
Details of currency risk management are set out in Note 32 (d) to the consolidated financial statements.
3.
Counterparty risk for financial products
CITIC Limited has business with various financial institutions, including deposits, interbank lending,
financial investment products and derivative financial instruments. To mitigate the risk of non-recovery of
deposited funds or financial instrument gains, member companies of CITIC Limited approve and adjust the
list of counterparties and credit limits of approved financial institutions through internal credit extension
processes. Regular report is required.
4.
Commodity risk
Some businesses of CITIC Limited involve the production, procurement, and trading of commodities, and
they face exposure to price risks of commodities such as iron ore, crude oil, gas and coal.
To manage some of its raw material exposures such as supply shortages and price volatility, CITIC Limited
has entered into long-term supply contracts for certain inputs or used plain vanilla futures or forward
contracts for hedging. While CITIC Limited views that natural offsetting is being achieved to a certain extent
across its different business sectors, it performs continual risk management review to ensure commodity
risks are well understood and controlled within its business strategies.
5.
Market price risk
CITIC Limited holds investments in financial assets classified as available-for-sale financial assets or
financial assets at fair value through profit or loss in the consolidated balance sheet. To control price risks
arising from such investments, the Group actively monitors the price changes and diversifies the relevant
investment risks through appropriate asset allocation.