Annual Report 2021

ANNUAL REPORT 2021 183 37. FINANCIAL RISK MANAGEMENT (CONTINUED) 37.2 Capital risk management The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the overall cost of capital. The Group prepares a five-year rolling forecast on its capital requirement in anticipation of funding requirement of new capital investments, capital expenditures of existing projects and repayment of borrowings. In order to maintain or adjust the capital structure, the Group may raise additional short-term or long-term borrowings, issue new shares or sell assets of non-core operations to reduce debts. The Group monitors capital with reference to, inter alia, the net gearing ratios. These ratios are calculated as the aggregate of net interest-bearing debts and lease liabilities divided by equity attributable to the Company’s equity holders and total equity. During the year, the Group’s strategy was to maintain desired levels of net gearing ratios and based on which the Group’s credit ratings had, inter alia, been reaffirmed at Baa1 by Moody’s Asia Pacific Limited and BBB by Standard and Poor’s. The net gearing ratios at 31 December 2021 and 2020 were as follows: 2021 2020 HK$’million HK$’million Total interest-bearing debts and lease liabilities (notes 32 and 33) 37,708 40,154 Less: cash and bank balances (note 26) (9,980) (11,290) Net interest-bearing debts and lease liabilities 27,728 28,864 Net gearing ratio: Net interest-bearing debts and lease liabilities divided by total equity 22.2% 25.4% 37.3 Fair value estimation The table below analyses the Group’s financial instruments carried at fair value on a recurring basis by valuation method. The different levels have been defined as follows: ‧ Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1). ‧ Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2). ‧ Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3). In estimating the fair value of an asset or a liability, the Group uses market-observable data to the extent it is available. Where level 1 inputs are not available, the Group engages third party qualified valuers to perform the valuation. The management engaged qualified external valuers to establish the appropriate valuation techniques and inputs to the models. Information about the valuation techniques and inputs used in determining the fair value of various assets is disclosed below.