ESR AR 2019 EN

Notes to the Consolidated Financial Statements 31 December 2019 233 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ESR Annual Report 2019 47. FAIR VALUE HIERARCHY OF FINANCIAL INSTRUMENTS The management is responsible for determining the policies and procedures for the fair value management of financial instruments. At each reporting date, the management analyzes the movements in the values of financial instruments and determines the major inputs applied in the valuation. The valuation is reviewed and approved by the chief financial officer. The valuation process and results are discussed with the board of directors for annual financial reporting. Management has assessed that the fair values of cash and bank balances, amounts due from related parties, trade receivables, financial assets included in prepayments, other receivables and other assets, current interest-bearing bank and other borrowings, amounts due to related parties, trade payables, and financial liabilities included in other payables and accruals, approximate to their carrying amounts largely due to the short-term maturities of these instruments. The fair values of the financial assets and liabilities are included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The following methods and assumptions were used to estimate the fair values: The fair values of the non-current interest-bearing bank and other borrowings have been calculated by discounting the expected future cash flows using rates currently available for instruments with similar terms, credit risk and remaining maturities. The fair values of listed equity investments are based on quoted market prices. The fair values of unlisted financial assets at fair value through profit or loss have been estimated based on the Group’s share of the net asset value of the investment funds. The net asset value of the investment funds comprise mainly their investment properties whose fair values were determined by an external, independent valuation company, having appropriate recognised professional qualifications and recent experience in the location and category of the properties being valued. Therefore, management has determined that the net asset value of the investment funds represent fair value as at financial year end. The summary of significant unobservable inputs to the valuation of financial instruments together with a quantitative sensitivity analysis as at the end of each of the financial year is as follows. Valuation technique Key unobservable input Range Sensitivity of the fair value to the input Unlisted financial assets at fair value through profit or loss Net asset value Net asset value 2019: USD356,000 to USD638,960,000 2018: USD143,841 to USD63,969,088 1% increase (decrease) in net asset value would result in increase (decrease) in fair value by 1% Investment in CCD at fair value Discounted cash flow Cost of equity 2019: 9.75% to 10.05% 2018: nil The estimate fair value varies inversely against the rate