Annual and transition report of foreign private issuers pursuant to Section 13 or 15(d)

10. Financial Instruments - Risk Management

v3.8.0.1
10. Financial Instruments - Risk Management
12 Months Ended
Dec. 31, 2017
Financial Instruments - Risk Management  
Financial Instruments - Risk Management

Note 10 – Financial Instruments – Risk Management

 

The Group, through its subsidiaries, is exposed to the following financial risks through its operations:

 

  Risks related to the general economic trend

 

  Risks related to fund requirements

 

  Other financial risks

 

  Credit risks

 

  Liquidity risk

 

  Interest rate risk

 

  Risk relevant to the environment

 

The Group is exposed to risks that arise from its use of financial instruments. This note describes the Group’s objectives, policies and processes for managing those risks and the methods used to measure them. Further quantitative information in respect of these risks is presented throughout these consolidated financial statements.

 

There have been no substantive changes in the Group’s exposure to financial instruments risks, its objectives, policies and processes for managing those risks or the methods used to measure them during the period unless otherwise stated in this note.

 

i. Principal financial instruments

 

The principal financial instruments used by the Group, from which financial instrument risk arises, are as follows:

 

  Trade and other receivables

 

  Cash and cash equivalents

 

  Trade and other payables

 

  Revolving lines of credit

 

  Floating-rate bank loans and lease agreements

 

  Notes payable

 

A summary of the financial instruments held by category is provided below:

 

Financial assets

    December 31,
2017
    December 31,
2016
    December 31,
2015
 
Cash and cash equivalents   $ 58,143     $ 55,393     $ 134,574  
Trade and other receivables     407,010       900,077       842,879  
Total financial assets   $ 465,153     $ 955,470     $ 977,453  

  

Financial liabilities

  December 31, 2017     December 31, 2016     December 31, 2015  
  Financial liabilities at fair value through profit or loss     Financial liabilities at amortized cost     Financial liabilities at fair value through profit or loss     Financial liabilities at amortized cost     Financial liabilities at fair value through profit or loss     Financial liabilities at amortized cost  
Trade and other payables   $     $ 6,409,094     $     $ 5,994,904     $     $ 5,372,684  
Loans and borrowings and notes payable           26,572,080             27,802,729             28,136,250  
Derivatives financial liabilities     1,859,700             794,235             2,733,836        
Total financial liabilities   $ 1,859,700     $ 32,981,174     $ 794,235     $ 33,797,633     $ 2,733,836     $ 33,508,934  

 

Financial instruments measured at fair value

    Fair value measurements at December 31, 2017 using  
    Level 1     Level 2     Level 3  
Financial liabilities                        
Derivative financial liabilities – convertible promissory notes   $     $ 1,859,700     $  

 

    Fair value measurements at December 31, 2016 using  
    Level 1     Level 2     Level 3  
Financial liabilities                        
Derivative financial liabilities – convertible promissory notes   $     $ 794,235     $  

 

 

    Fair value measurements at December 31, 2015 using  
    Level 1     Level 2     Level 3  
Financial liabilities   $       $       $    
Derivative financial liabilities – convertible promissory notes           2,568,188        
Derivative financial liabilities – interest rate swap agreement           165,648        
Total financial liabilities   $     $ 2,733,836     $  

 

General objectives, policies and processes

 

The Board has overall responsibility for the determination of the Group’s risk management objectives and policies.

 

The overall objective of the Board is to set policies that seek to reduce risk as much as possible without unduly affecting the Group’s competitiveness and flexibility. Further details regarding these policies are set out below:

 

Risk related to the general economic trend

 

The Group performance is affected by the increase or decrease of the gross Italian national product. Europe experienced a general slowdown in its economy, especially in Italy during 2014 and 2015, with a slight improvement in the economic trend in Italy during 2016 and continued positive trend in 2017.

 

Related to fund requirements

 

Operations may not generate adequate financial resources for operations. The Group may need to raise necessary financial resources by obtaining new loans. If the Group attempts to obtain new loans in the future, management believes that the Group may encounter higher interest rate spreads and greater difficulties in obtaining long-term loans in comparison to the past.

 

Other financial risks

 

The Group is exposed to financial risks associated with its business operations:

 

  Credit risk in relation to normal trade transactions with customers;

 

  Liquidity risk, with particular reference to the raising of financial resources associated with investments and the financing of working capital;

 

  Market risks (mainly related to interest rates).

 

Credit risk

 

The granting of credit to end customers is subject to specific preliminary and on-going assessments of each tenant. Positions amongst trade receivables (if individually significant) for which objective partial or total non-recoverability is ascertained, are subject to individual write-down.

 

The Group’s cash is held with the following institutions:

 

Description   Rating     December 31,
2017
    December 31,
2016
    December 31,
2015
 
                         
Cassa Rurale e Artigiana di Binasco Credito Coorperativo     N/A     $ 19,225     $ 28,016     $ 87,046  
Banca Intesa Sanpaolo     BBB       17,906       1,556       1,200  
First Republic Bank     A-       7,363       4,467       22,989  
Banca Cassa di Risparmio di Asti     N/A       5,755       5,296       6,527  
Banca Popolare di Vicenza     CCC       5,570       8,942       10,244  
ING Luxembourg     A+       2,050       2,980       2,831  
Bank of China     A             3,246       1,406  
Banca Popolare Commercio e Industria     C+             417       1,781  
M&T Bank     A-                   427  
Total cash at bank           $ 57,869     $ 54,920     $ 134,451  

  

Accounts at the institutions in United States are insured by the Federal Deposit Insurance Corporation (FDIC) for up to $250,000. Accounts at the institutions in Italy are guaranteed by Interbank Deposit Protection Fund for up to €100,000. The Company performs ongoing evaluations of these institutions to limit its concentration of risk exposure.

  

Foreign exchange risk

 

The Subsidiaries transactions are denominated in Euros. Therefore, the fair value of the investment properties may decrease if the Euro to US dollar exchange rate decreases, while the loans and borrowings would decrease accordingly. Management believes the foreign exchange risk the Group encounters is relatively low.

 

Liquidity risk

 

Liquidity risk may manifest with regards to the inability to raise the financial resources necessary for the anticipated investments under good economic conditions and for financing working capital.

 

The Group has adopted a series of policies and processes aimed at optimizing the management of the financial resources, reducing the liquidity risk, such as the maintenance of an adequate level of available liquidity, and obtaining adequate credit facilities and the systematic monitoring of the forecast liquidity conditions.

 

The following table sets out the contractual maturities (representing undiscounted contractual cash-flows) of financial liabilities:

 

At December 31, 2017   Up to
1 year
    Between
1 and 5
years
    Over 5
years
    Total  
                         
Trade and other payables   $ 6,389,497     $ 19,597     $     $ 6,409,094  
Loans and borrowings     4,438,354       3,967,793       14,178,454       22,584,601  
Notes payable to stockholders     3,987,479                   3,987,479  
Derivative financial liabilities     1,859,700                   1,859,700  
Total   $ 16,675,030     $ 3,987,390     $ 14,178,454     $ 34,840,874  

  

At December 31, 2016   Up to 1
year
    Between
1 and 5
years
    Over 5
years
    Total  
                         
Trade and other payables   $ 5,914,549     $ 80,355     $     $ 5,994,904  
Loans and borrowings     4,206,847       5,021,073       16,089,243       25,317,163  
Notes payable to stockholders     2,516,981                   2,516,981  
Derivative financial liabilities     794,235                   794,235  
Total   $ 13,432,612     $ 5,101,428     $ 16,089,243     $ 34,623,283  

 

At December 31, 2015   Up to 1
year
    Between
1 and 5
years
    Over 5
years
    Total  
                         
Trade and other payables   $ 5,372,684     $     $     $ 5,372,684  
Loans and borrowings     5,087,208       4,034,053       17,686,726       26,807,987  
Notes payable to stockholders     1,328,263                   1,328,263  
Derivative financial liabilities     2,733,836                   2,733,836  
Total   $ 14,521,991     $ 4,034,053     $ 17,686,726     $ 36,242,770  

 

Risk relevant to the environment

 

The activities of the Group are not directly subject to authorization and environmental rules and regulations. The activities of some tenants may be subject to regulations on emissions in the atmosphere, waste disposal, wastewater disposal and land contamination ban.

 

Capital Disclosures

 

The Group monitors adjusted capital which comprises all components of equity (i.e. capital quotas, legal reserve, non-controlling interest and retained earnings).

 

The Group’s objectives when maintaining capital are:

 

  To safeguard the entity’s ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders, and

 

  To provide an adequate return to shareholders by pricing services commensurate with the level of risk.