Notes to The Consolidated Financial Statement
AL MAZAYA HOLDING COMPANY K.S.C.P. AND ITS SUBSIDIARIES
31 December 2014
Notes to The Consolidated Financial Statement
AL MAZAYA HOLDING COMPANY K.S.C.P. AND ITS SUBSIDIARIES
31 December 2014
Description of significant unobservable inputs to valuation of financial assets:
Managed portfolio and funds have been valued based on Net Asset Value (NAV) provided by the custodian of the fund and
the information relating to valuation techniques and significant unobservable inputs to valuation to compute the sensitivity
of the fair value measurement to changes in unobservable inputs in not available.
Non-financial instruments
Investment properties are fair valued at year end and are classified under level 3 fair value hierarchy and reconciliation is
provided in note 8.
Description of significant unobservable inputs to valuation of non-financial assets:
Fair value of investment properties were determined using Mark to Market method and capitalisation of rental income
method. The fair valuation was conducted by valuators considering transaction prices of similar properties in case of Mark
to Market method. The significant unobservable valuation input used is the market price per square foot and varies from
property to property. A reasonable change in this input would result in an equivalent amount of change in fair value.
Capitalisation of rental income method assumes capitalisation of annual rental income and the significant unobservable
valuation input used is the capitalisation rate in the range of 5.8% to 9.5%. A 5% increase in this input would result in an
equivalent decrease in fair value.
Certain investment properties owned by the Group on Build Operate and Transfer (BOT) basis are valued using discounted
cash flow method.
30. RISK MANAGEMENT
Introduction
Risk is inherent in the Group’s activities but it is managed through a process of ongoing identification, measurement and
monitoring, subject to risk limits and other controls. This process of risk management is critical to the Group’s continuing
profitability.
Risk management structure
The Board of Directors of the Parent Company are ultimately responsible for the overall risk management approach and for
approving the risk strategies and principles.
The major risks to which the Group is exposed in conducting its business and operations, and the means and organisational
structure it employs in seeking to manage them strategically in building shareholder value are outlined below.
Excessive risk concentration
Concentrations arise when a number of counterparties are engaged in similar business activities, or activities in the same
geographic region, or have similar economic features that would cause their ability to meet contractual obligations to be
similarly affected by changes in economic, political or other conditions. Concentrations indicate the relative sensitivity
of
the Group’s performance to developments affecting a particular industry or geographical location.
In order to avoid excessive concentrations of risk, the Group’s policies and procedures include specific guidelines to
focus
on country and counter party limits and maintaining a diversified portfolio. Identified concentrations of credit risks are
controlled and managed accordingly.
30.1 Credit risk
Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party
to incur a financial loss. The Group manages credit risk by setting limits for individual counter-parties, monitors credit
exposures, and continually assesses the creditworthiness of counterparties, with the result that the Group’s exposure to
bad debts is not significant.
82
2014
KD
972,494
-
972,494
Balance at the beginning of the year
Charge for the year
Balance at the end of the year
2013
KD
972,494
-
972,494
The Group trades only with recognised, creditworthy third parties. In addition, receivable balances are monitored on an
ongoing basis. For transactions that do not occur in the country of the relevant operating unit, the Group does not offer
credit terms without the approval of the Group management.
With respect to credit risk arising from the other financial assets of the Group, which comprise bank balances, short term
deposits and account receivables, the Group’s exposure to credit risk arising from default of the counterparty, with a
maximum exposure equal to the carrying amount these instruments.
Due to the nature of the Group’s business, the Group does not take of collaterals against receivables.
30.1.1 Gross maximum exposure to credit risk
The table below shows the gross maximum exposure to credit risk across the Group’s financial assets.
Financial assets of the Group subject to credit risk are distributed over the following geographical regions:
The Group’s exposure is predominately to real estate and construction sectors.
There is no concentration of credit risk with respect to real estate receivables, as the Group has a large number of tenants.
30.1.2 Credit quality of financial assets that are neither past due nor impaired
The Group neither uses internal credit grading system nor external credit grades. The Group manages credit quality by
ensuring that credit is granted only to known creditworthy parties.
30.1.3 Past due and impaired
The Group does not have any past due but not impaired financial assets as at 31 December 2014 and 31 December 2013.
Gross amount due amounting to KD 2,129,737 (2013: KD 2,129,737) were impaired with a provision of KD 972,494
(2013: KD 972,494). The movement in provision allowance during the year is as follows:
Allowance for doubtful debts for receivables
2014
KD
9,070,010
13,734,809
7,404
22,812,223
Geographical regions:
Kuwait
UAE
Other
2013
KD
6,280,165
16,163,114
7,224
22,450,503
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