The Company’s main financial liabilities consist of bank loan and other financial institutions, trade payable third parties, others payable, accrued payable, payable from non-business related parties, advance payment from customer, employee benefit, and other long therm loan. The main purpose of financial liabilities is to raise-up capital in Company’s business to support the operational and investment activities.
The Company has some kind of financial assets, such as cash, accounts receivable, other accounts receivable, accounts receivable of non-trade related parties as well as liquid and non liquid financial assets that arise directly from its business activities.
The main risk of the Company’s financial instruments are market risk (including foreign exchange risk and commodity price risks), interest rate risk, credit risk and liquidity risk. Management review and approved policies for managing each of these risks are explained in detail as follows:
The Company does not significantly use foreign currency because almost all transactions, assets and liabilities are denominated in rupiah.
The Company’s reporting currency is rupiah. The Company faces foreign exchange risk because of the costs of importing building equipment and supplies but this is not material, so the risks to foreign currencies, such as the United States dollar, are not significant.
The Company does not have a formal hedging policy for foreign exchange rates. If necessary, the Company will hedge to reduce the risk of foreign currency risk. Transactions in foreign currencies other than those related to routine operations are maintained at an acceptable minimum level.
The impact of commodity price risk faced by the Company is mainly related to the purchase of main building materials such as iron, steel, paint and cement. Before it happens, the Company anticipates by making a contract with such related vendors to binds the price, quantity and delivery period according to the Company’s requirement.
The Company’s policy to minimize risks arising from fluctuations in commodity prices is to maintain the level of stability related to developmental cost, in addition to the current year’s net profit to be achieved by the Company.
The Company’s interest rate risk mainly arises from loans for working capital and investment purposes. Loans at various variable interest rates indicate the Company to the fair value of interest rate risk. The Company manages its interest rates by combining loans with fixed and floating interest rates.
Credit risks faced by the Company is derived from the credit given to customers and tenants. To minimize this risk, the accounts receivable balance is monitored continuously to reduce the possibility of non-collectible receivables.
For customers who fail to pay against a property that was purchased, then the Company will not perform handover ownership of such property. As for tenants who rent arrears will be monitored from the deposit already received by the Group. So before the arrears became larger than the warranty, actions need to be taken, such as terminating the tenancy agreement and scheduling a back payment. The Company’s management states that there is no significantly concentrated risk over receivables.
In relation to credit risk arising from other financial assets which include cash and cash equivalents, the credit risk faced by the Company arises due to defaults and counter parties. The Company has a policy of not placing investments in high-risk credit instruments and placing cash and cash equivalents only with banks and other financial institutions that have good reputation.
The Company manages liquidity profile to be able to fund its capital spending and pay debt maturing by maintaining sufficient cash and cash equivalents, as well as the availability of funding through committed credit facility amount.
The Company regularly evaluates cash flow projections and actual cash flows and continue to maintain the stability of the debt day and day of receivables.
Wherever possible, the Company obtain funding either from the capital market and financial institutions also balances its portfolio with short-term funding in order to achieve an efficient financing.
The main purpose of the Company’s capital management is to ensure maintenance of a healthy capital ratios between liability and equity amount to support the business and to maximize its returns to the shareholders. The Company manages and makes adjustments to the capitalization structure based on the changes in economic conditions. In order to maintain and manage the capital structure, the Company considers the efficiency of capital usage based on operating cash flows and capital expenditures, as well as considers the capital requirement in the future. The management policy is to maintain a consistently healthy long-term capitalization structure in order to maintain access to a variety of financing alternatives at fair cost (cost of fund).
As generally accepted practices, the Company evaluates its capital structure through debt-to-equity ratio (gearing ratio) calculated by dividing between net debt to equity. Net debt represents the sum of liabilities as presented in the Consolidated Statements of Financial Position which being reduced by the amount of cash and cash equivalents. While the equity covers the entire equity attributable to shareholders of the Company.