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CapitaLand, Risk Management is an integral part
of the strategic and operational decision-making
process at all levels of the organisation. All
the risk management systems and methodologies are
continuously reviewed and enhanced to respond to
the constantly changing environment the company
is operating in. |
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CapitaLand’s
predecessors had already established some risk
management methodologies and
policies in the mid-90s even before CapitaLand
was incorporated in November 2001. Upon CapitaLand’s
formation, a comprehensive risk management framework
was institutionalised across the Group. A three-member
Risk Committee (“RC”) that was established
in 2002 provides supervision. In 2007, this was
chaired by three independent board directors, namely,
Mr James Koh Cher Siang, Mr Richard Hale and Mrs
Arfat Selvam. The three were joined by CapitaLand
Group President and CEO Mr Liew Mun Leong, and
members of CapitaLand’s senior management
team. These members are assisted by an independent
unit called the Risk Assessment Group (“RAG”).
To assist the Committee, Mr Liew and senior management,
RAG generates a comprehensive portfolio risk report
that reviews and highlights the types of risks;
it also evaluates their risk levels vis-a-vis the
Group’s assets and liabilities and prevailing
market conditions. This report measures a broad
spectrum of risks such as property market risk,
construction risk, interest rate risk, refinancing
risk and currency risk. It is presented at the
RC meeting held quarterly.
One key reporting tool used is a generic Value-at-Risk
(VaR) model adapted from the banking industry and
tailored to the property industry. This is a comprehensive
risk measurement tool that measures the potential
value deterioration of all individual exposures
of the Group using a historical simulation method.
RAG uses a risk-adjusted system to determine country
limits based on the sovereign risk ratings of internationally recognised
rating agencies. This helps the management avoid
over-concentration risk and manage country transfer
risk.
RAG employs a state-of-the-art risk evaluation
system by using a contingent obligation risk registry
to update and capture all the Group’s contingent
obligations arising from treasury activities, commercial
business dealings and legal law suits on a regular
basis. All these obligations are then objectively
evaluated and priced using risk adequate pricing
models like Monte Carlo simulation, Binomial Tree
techniques and independent expert opinions.
At the individual project level, RAG prepares an
independent risk evaluation report for all investment
proposals above a stipulated investment value.
In this report, specific value drivers and potential
risks of each proposal are highlighted and all
parameters are benchmarked against objective market
comparables and historical projects undertaken
by the Group. RAG will from time to time recommend
improvements in the project structures to mitigate
the risks identified and improve the risk-return
profile. Additionally, RAG is instrumental in calculating
the weighted average cost of capital and risk-adjusted
target return according to the risk profile in
the various countries and business units that the
Group is active in. This is to ensure that for
every investment undertaken, the potential returns
must commensurate with the risks undertaken so
as to create value for the shareholders on a risk-adjusted
basis. The risk evaluation report is then submitted
to the respective business development team and
approval authority.
To instill a risk awareness culture in business
development teams and equip them with risk management
skills, RAG has implemented the concept of front
loading the risk management process to front office
operations. This is done through regular interactive
workshops that allow RAG and business development
teams to share and pass on experiences learned
from previous proposals. In 2007, RAG visited several
overseas offices to train the respective business
development teams in the risk management process
and exchange ideas, views and lessons learned.
Concurrently, RAG visited several project sites
to get updates and a better understanding of the
local markets and competitors, to identify and
mitigate new risks arising from changes in the
local market conditions.
In conclusion, Risk Management in CapitaLand is
an integral part of the strategic and operational
decision-making process at all levels of the organisation.
All the risk management systems and methodologies
are continuously reviewed and enhanced to respond
to the constantly changing environment the company
is operating in. The outcome of this entire process
is thorough risk governance, optimised risk-return
relationship for the Group’s investments
and enhanced shareholders’ value. |
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