Annual Report 2019

164 CHINA MERCHANTS PORT HOLDINGS COMPANY LIMITED Notes to the Consolidated Financial Statements For the year ended 31 December 2019 3. FINANCIAL RISK MANAGEMENT (CONTINUED) 3.2 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 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 2019 and 2018 were as follows: 2019 2018 HK$’million HK$’million Total interest-bearing debts and lease liabilities (notes 33 and 34) 39,416 38,856 Less: cash and bank balances (note 28) (7,800) (7,175) Net interest-bearing debts and lease liabilities 31,616 31,681 Net gearing ratio: Net interest-bearing debts and lease liabilities divided by total equity 33.6% 36.0% 3.3 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).