NewWorld Development Company Limited
RISK FACTORS
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B. RISK RELATING TO FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
(continued)
2. The Group’s finance costs and interest expenses fluctuate with changes in interest rates. In Hong Kong, the
Group’s borrowings include amounts denominated in Hong Kong dollars. The interest rates on some of our
outstanding Hong Kong dollar denominated borrowings are benchmarked to the Hong Kong interbank offered
rates (“HIBOR”) for Hong Kong dollars. We cannot assure that the benchmark interest rate will not increase
in the future, which would increase our financing costs and interest expenses. In the PRC, the Group’s
borrowings also include amounts denominated in RMB. The People’s Bank of China adjusts its benchmark
lending rates from time to time in response to domestic and global economic changes. On 22 November
2014, the one-year benchmark lending rate was set at 5.6% as promulgated by the People’s Bank of China.
On 28 February 2015, the one-year benchmark lending rate for loans effective on 1 March 2015 was reduced
to 5.35%, whereas the Group cannot guarantee that the People’s Bank of China will not raise such lending
rates in future. In addition, as the Group also borrows from overseas banks and other financial institutions,
the availability of sufficient capital in the capital market directly affects the cost of borrowing in relation to the
currencies the Group borrows. The Group may also be affected by changes in the prevailing interest rate of
the global credit market. Any increase in interest rate in connection with the currencies the Group borrows will
increase the Group’s finance costs and customers’ mortgage interest rates and may adversely and materially
affect the Group’s businesses, financial condition, results of operations and growth prospects.
3. Fluctuations in the Group’s results of operations may also be induced by other factors, including changes
in market demand for the Group’s properties. In addition, the periodicity of the property market also has
an impact on the optimal timing for land acquisition as well as the planning of development and sales of
properties. As results of operations in relation to property development activities are susceptible to significant
fluctuations, comparison of the Group’s results of operations and cash flow position among periods may not
be an effective indicator of the Group’s financial performance in any particular period.
4. The Group is required to reassess the fair value of its investment properties at every balance sheet date to
which financial statements are made up. Pursuant to Hong Kong Financial Reporting Standards (HKFRS),
investment properties are stated at their fair value, and the variation in their changes should be taken to the
consolidated income statement of the financial period in which it is incurred. Based on the appraisal conducted
by independent property valuers, the Group recognises the aggregate market value of investment properties
at fair value and the related deferred tax in the consolidated statement of financial position, while the
variation in changes in fair value and the related deferred tax of investment properties are recognised in the
consolidated income statement. Therefore, the assumptions made in appraising investment properties would
change under changing market conditions, including lower weighted average capital ratio. Notwithstanding any
variations in profit, fair value gains and losses are not cash items and will not increase or decrease cash and
cash equivalent. The amount of revaluation adjustment has been and will continually be subject to changes
in market conditions. As such, there can be no assurance that changes in market conditions will continue to
generate gains from fair value changes in investment properties at similar level or at all, or there will be no
decline in the fair value of the Group’s investment properties. If a property market in the region where the
Group operates slows down, the fair value of the Group’s investment properties may decline.
