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PERENNIAL REAL ESTATE HOLDINGS LIMITED
Annual Report 2015
ENTERPRISE RISK MANAGEMENT
A robust internal control system and an effective,
independent review and audit process are the twin
pillars that underpin Perennial’s ERM framework.
While the Management is responsible for the design
and implementation of effective internal controls using a
risk-based approach, the internal audits conducted on
the business operations provide a reasonable assurance
to the ARC on the adequacy and effectiveness of the
internal control system.
MANAGING KEY RISKS
Perennial undertakes a comprehensive approach
in identifying, managing, monitoring and reporting
key risks across the group. Such key risks include:
Macroeconomic Risk
Perennial’s performance is highly dependent on the
economies and the financial and property markets in
which Perennial invests in. The developments in these
economies may affect business sentiment towards real
estateandproperty investment, thereby reducing revenue
and potentially resulting in a downward revaluation of
Perennial’s assets. Market illiquidity during a financial
crisis makes asset divestment challenging and the cost
of financing is also higher during such times and this can
affect Perennial’s investment and strategic objectives
and increase the holding cost of the investment asset.
Perennial manages such risk by adopting a disciplined
approach towards financial management, diversifying
its investment portfolio across geographies and
focusing on cities where the Management has a good
understanding of the financial and property markets or
in countries where it can leverage on the knowledge
and experience of its sponsors, which comprise
Mr. Kuok Khoon Hong, Mr. Ron Sim, Wilmar International
Limited and Mr. Pua Seck Guan. The Management and
asset level management teams vigilantly monitor the
key global economic trends and the macro-economic
environment of Perennial’s investments. The Board
is updated regularly on future economic trends and
the impact of these trends on Perennial’s existing and
potential investments.
Investment Risk
Perennial manages investment risk through a disciplined
approach of risk assessment and risk evaluation
for each investment proposal. The assessment and
evaluation include macro and project specific risks
analysis, encompassing due diligence, feasibility studies
and sensitivity analyses on key investment assumptions
and variables. Each investment proposal is objectively
evaluated to determine its compatibility with corporate
strategy and investment objective. Potential investment
proposals are also evaluated against a comprehensive
set of investment parameters.
Risks of each proposal are highlighted and where
possible, mitigation measures are proposed. Perennial’s
investment managers also stress-test the potential
financial impact of different scenarios with sensitivity
analyses and other relevant tools.
In addition, potential business and partnership synergies
are identified early to ensure business partnership
objectives and visions are well-aligned and collaboration
partners are like-minded and compatible.
All major investment and divestment proposals are
submitted for the Board’s deliberation and approval.
Projects under development are tracked for progress
updates andmonitored for their investment performance.
Financial Risk
Financial risk management refers to the management
of Perennial’s ability to meet its financial obligations
and mitigate its credit, liquidity, foreign exchange and
interest rate risks. Perennial seeks to actively manage
its financial risk exposure through established financial
policies, such as Perennial’s treasury policies and
financial authority limits. These policies are reviewed
periodically to incorporate changes in the operating and
control environment.
Perennial actively monitors its debt maturity profile
and cash flows to ensure adequate funding resources
are available for investment and working capital.
To manage liquidity risk, Perennial maintains an adequate
level of cashflows tomeet its working capital needs. It also
maintains adequate loan facilitieswith financial institutions
to enable it to draw on such facilities when required.
In addition to bank lines, Perennial has expanded its
sources of funding with the establishment of a S$2 billion
multicurrency debt issuance programme in January
2015. As at 31 December 2015, Perennial has tapped
S$100 million under this programme. Perennial has
also tapped the retail bonds market in October 2015 to
further diversify its sources of funding.
Perennial’s credit risk arises mainly from the tenants
of its properties and the financial institutions which it
had placed its cash deposits with. Credit risk exposure
from the tenants is managed by screening such
