45 / 49
KUWAIT ENERGY PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the six months ended 30 June 2016
44
28.
FINANCIAL INSTRUMENTS (CONTINUED)
Interest rate risk management
The Group is exposed to interest rate risk as it has placed funds in interest bearing time deposits with banks, but the
Group’s exposure to interest rate risk is not significant since in current period the entities within the Group have not
borrowed funds at floating interest rates that could have an impact on the Group’s consolidated income statement.
The Group’s exposure to interest rates on financial assets and liabilities are detailed in the liquidity risk management
section of this note.
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. On-going credit evaluation is performed on the financial condition of accounts receivable.
During the period ended 30 June 2016, 78% of total revenue (30 June 2015: 90%, 31 December 2015: 94%) was derived
from sales to the Group’s largest counterparty, EGPC and remaining revenue was derived from sales to SOC. Further
details of the Group’s receivables with EGPC and SOC are provided in note 17. The Group defines counterparties as
having similar characteristics if they are related entities.
Credit risk on liquid funds and derivative financial instruments is limited because the counterparties are banks with
high credit ratings assigned by international credit rating agencies.
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:
30 June
31 December
2016
2015
Audited
Audited
US$ 000’s
US$ 000’s
Trade and other receivables
62,469
47,785
Cash and cash equivalents
54,459
105,297
116,928
153,082
The maximum exposure to credit risk for trade receivables at the reporting date by geographic region was:
Egypt
29,655
30,167
Iraq
14,364
-
44,019
30,167
Liquidity risk management
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s
approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its
liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking
damage to the Group’s reputation.
Ultimate responsibility for liquidity risk management rests with the management, which has built an appropriate
liquidity risk management framework for the management of the Group’s short, medium and s funding and liquidity
management requirements. The Group manages liquidity risk by maintaining adequate reserves and banking facilities,
by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and
liabilities.