NOTES TO THE FINANCIAL STATEMENTS Year ended 31 December 2025 41 FINANCIAL INSTRUMENTS (CONT’D) (iv) Hedge accounting (cont’d) Net investment hedges (cont’d) The Group uses a mixture of foreign currency-denominated debt, foreign exchange swaps contracts and cross-currency swaps as hedging instruments. When the hedging instrument is foreign currency-denominated debt, the Group assesses effectiveness by comparing past changes in the carrying amount of the debt that are attributable to a change in the spot rate with past changes in the investment in the foreign operation due to movement in spot rate (the offset method). The Group’s policy is to hedge the net investment only to the extent of the debt principal. When the hedging instrument is a foreign exchange swaps contracts or cross-currency swap, the Group establishes a hedge ratio where the notional on the foreign exchange swaps contracts and cross-currency swap matches the carrying amount of the designated net investment. The Group ensures that the foreign currency in which the hedging instrument is denominated is the same as the functional currency of the net investment. This qualitative assessment is supplemented quantitatively using the hypothetical derivative method for the purposes of assessing hedge effectiveness. The Group assesses effectiveness by comparing past changes in the fair value of the derivative with changes in the fair value of a hypothetical derivative. The hypothetical derivative is constructed to have the same critical terms as the net investment designated as the hedged item and a fair value of zero at inception. The Group’s policy is to hedge the net investment only to the extent of the nominal amount of the foreign exchange or cross-currency swap leg of the derivative. The Group held the following instruments to hedge exposures to changes in foreign currencies: Notional amount Carrying amount – Assets/ (Liabilities) Line item in the statement of financial position where the hedging instrument is included $’000 Group Net investment hedges 2025 Foreign exchange risk – Borrowings to hedge net investments in foreign operations $745,146,000 equivalent (745,146) Interest-bearing borrowings – Cross-currency swaps to hedge net investments in foreign operations $686,297,000 equivalent 9,429 Derivative financial assets – Cross-currency swaps to hedge net investments in foreign operations $381,498,000 equivalent (2,753) Derivative financial liabilities 2024 Foreign exchange risk – Borrowings to hedge net investments in foreign operations $610,539,000 equivalent (610,539) Interest-bearing borrowings – Cross-currency swaps to hedge net investments in foreign operations $278,557,000 equivalent 4,726 Derivative financial assets – Cross-currency swaps to hedge net investments in foreign operations $803,083,000 equivalent (8,590) Derivative financial liabilities 212 | CITY DEVELOPMENTS LIMITED
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