The Company is exposed to market risk, credit risk and liquidity risk. Management oversees the management of these risks. Management provides assurance that the financial activities are governed by appropriate policies and procedures and those financial risks are identified, measured and managed in accordance with policies and risk appetite. The management reviews and agrees policies for managing each of these risks which are summarized below:
Interest Rate Risk
Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rate. The Companyís interest rate risk mainly arises from loans. The Companyís exposure to the risk of changes in market interest rates related primarily to the Companyís long-term bank loans with interest rate that will be periodically reviewed to be adjusted prospectively with the market.
Foreign Currency Conversion Rate Risk
Foreign currency risk is a risk in the fair value of future cash flows of a financial instrument fluctuates as a result of changes in foreign currency exchange rates used by the Company. The Company uses United Stated Dollar as a reporting currency.
Commodity Price Risk
The Company is exposed to price risk due to purchase of main raw materials, i.e PTA and MEG. The prices of raw materials are mainly affected by commodity crude oil price in global market. Changes in commodity world oil price affect the settlement price on purchase of PTA and MEG, at the end will affect trades payable balance in connection of purchase PTA and MEG. The Company does not have formal mechanism or procedures to mitigate risks caused by the price of the above commodity.
Liquidity Risk
Liquidity risk is a risk that occurs when short-term revenue can not cover short-term expenditures. The Company manages its liquidity profile to be able to finance its capital expenditures and manages its maturing debts by maintaining sufficient cash and the availability of funding through an adequate amount of committed credit facilities. In addition, the Company also regularly evaluates cash flow projections and actual cash to cope with the impact of fluctuations in cash flow, including the maturity schedule of long-term liabilities and continue to examine the condition of financial markets
Credit Risk
Credit risk is the risk that the Company will incur a loss from defaulted customers. Management policies in anticipation of credit risk from its customers are as follows:
- The Company will only do business relationships with creditworthy customers that have good credit history. While for Customers who have poor credit history, the Company applies Cash Before Delivery (CBD) system;
- Have a policy for credit sales and all third parties who will make credit transaction have to go through credit verification procedures.
- Provide limits or ceiling to a third party who will do credit transaction with the Company up to the amount of their guarantees.
- The Company has policies that limit the amount of credit exposure to any particular customer, such as requirement to provide bank guarantees.
- Monitor the amount of receivables on an ongoing basis to reduce the risk for doubtful accounts.
The Company minimizes credit risks on financial assets such as cash and cash equivalents by maintaining minimum cash balance and selection of qualified bank for the placement of funds. The risk management policies adopted already work quite well and effective to manage the risks which may arise.
