KUWAIT ENERGY plc GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2011
F-158
29.
FINANCIAL INSTRUMENTS (CONTINUED)
Market risk (Continued)
Interest rate risk management
The Group is exposed to interest rate risk as it has borrowed funds from banks and financial institutions and
has placed funds in interest bearing time deposits with banks during the year.
Interest rate sensitivity analysis
The Group’s exposures to interest rates on liabilities are detailed in note 20 to these consolidated financial
statements. The Group uses interest rate cap (See note 23) to manage interest rate risk on the murabaha
facility.
The following table illustrates the sensitivity of the profit for the year to a reasonably possible change in
interest rates of + 1% with effect from the beginning of the year. These changes are considered to be
reasonably possible based on observation of current market conditions. The calculations are based on the
Group’s financial instruments held at each consolidated statement of financial position date. All other
variables are held constant. There has been no change in the methods and the assumptions used in the
preparation of the sensitivity analysis.
A positive number below indicates an increase in profit and negative number indicates decrease in profit. A
1% decrease in the interest rates would have the opposite effect.
2011
2010
USD 000’s
USD 000’s
Impact on consolidated statement of income
(530)
(267)
Credit risk management
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial
loss to the Group. The Group has adopted a policy of only dealing with creditworthy counterparties as a
means of mitigating the risk of financial loss from defaults. The Group’s exposure and the credit ratings of its
counterparties are continuously monitored and the aggregate value of transactions concluded is spread
amongst approved counterparties. Ongoing credit evaluation is performed on the financial condition of
accounts receivable.
During the year, 67% of total revenue (2010: 60%) was derived from the sales to the Group’s largest
counterparty, the Egyptian General Petroleum Corporation (2010: Egyptian General Petroleum Corporation).
Further details of the Group’s receivables with EGPC are provided in note 4 (“Debtor recoverability”). The
Group defines counterparties as having similar characteristics if they are related entities.
Exposure to credit risk
The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to
credit risk at the reporting date was:
2011
2010
USD 000’s
USD 000’s
Trade and other receivables
176,055
135,199
Bank balances
40,477
58,092
216,532
193,291
