Financial Risk

Governance structure and management policies

The asset and liability management committee (“ALCO”) has been established to monitor financial risks of the Group and its member companies in accordance with, among others, the Treasury and Financial Risk Management Policy of CITIC Limited (“treasury and financial risk management policy”). The finance department is responsible for implementing the treasury and financial risk management policy, communicating ALCO’s decisions to member companies, monitoring adherence and preparing relevant management reports. All member companies have the responsibility for managing their financial risk positions effectively and report to ALCO on a timely basis, subject to the overall risk framework under the treasury and financial risk management policy and within the authorisations.

Based on the annual budget, ALCO shall review the Group’s financing plan and instruments, oversee fund management and cash flows, and manage risks relating to counterparties, interest rates, currencies, commodities, commitments and contingent liabilities, and is responsible for formulating hedging policy and approving the use of new risk management tools.

Pursuant to the treasury and financial risk management policy, CITIC Limited identifies, classifies and manages the financing, fund management and risk management processes of its member companies.

Asset and liability management

One of the main functions of ALCO is asset and liability management. CITIC Limited’s sources of funds for different businesses include long-term and short-term debt and equity, of which ordinary shares, preferred shares and perpetual securities are the alternative forms of equity financing instruments. CITIC Limited manages its capital structure to finance its overall operations and growth by using different sources of funds. The type of funding is targeted to match the characteristics of our underlying business.

1. Debt

   ALCO regularly monitors the existing and projected debt levels of CITIC Limited, to ensure a reasonable level for debt size, structure and cost of the Group and its member companies.

   As at 31 December 2014, consolidated debt of CITIC Limited⁽¹⁾ was HK$492,119 million, including loans of HK$218,993 million and debt instruments issued⁽²⁾of HK$273,126 million. Debt of the head office of CITIC Limited⁽³⁾ accounted for HK$82,444 million and debt of CITIC Bank⁽⁴⁾ HK$169,215 million. In addition, the head office of CITIC Limited had cash and deposits of HK$13,031 million and available committed facilities of HK$19,012 million.

   The details of debt are as follows:

   
   Consolidated debt by maturity as at 31 December 2014
   
   Consolidated debt by type as at 31 December 2014
   

   The debt to equity ratio of CITIC Limited as at 31 December 2014 is as follows:

   
2. Liquidity risk management

   The objective of liquidity risk management is to ensure that CITIC Limited always has sufficient cash to repay its due debt, perform other payment obligations and meet other funding requirements for normal business development.

   CITIC Limited’s liquidity management requirements involve regularly projecting cash flows in major currencies for three years and considering the level of liquid assets and new financings necessary to meet future cash flow requirements.

   With flexible access to domestic and overseas markets, CITIC Limited seeks to diversify the sources of funding through different financing vehicles, in order to raise low-cost funding of medium and long terms, maintain a mix of staggered maturities and minimise refinancing risk.

   Details of liquidity risk management are set out in Note 48(b) to the consolidated financial statements.

3. Contingent liabilities and commitments

   Details of contingent liabilities and commitments of CITIC limited as at 31 December 2014 are set out in Note 47  to the consolidated financial statements.

4. Pledged loan

   Details of cash and deposits, inventories and fixed assets pledged as security for CITIC Limited’s loan as at 31 December 2014 are set out in Note 42(d) to the consolidated financial statements.

5. Credit ratings
   

   After the former CITIC Pacific acquired the substantially all of the assets from CITIC Group and changed the name to CITIC Limited, CITIC Limited was re-rated by Moody’s from “Ba2” (as previously for CITIC Pacific) to “A3” in August 2014, and by Standard & Poor’s from “BB” (as previously for CITIC Pacific) to “BBB+” in September 2014. In January 2015, Standard & Poor’s placed CITIC Limited’s rating on CreditWatch with positive implication.