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20. Financial risk management

The Group’s principal financial instruments comprise cash, loans to related parties and payables. The carrying amount equates to the fair value of the financial instruments. These activities expose the Group to interest rate risk, credit risk and liquidity risk.

As at 30 June 2019, the Group held the following financial instruments:

2019

$'000

2018

$'000

Financial assets

Cash and cash equivalents

83,382

60,578

Non-interest-bearing loans to related parties

8,628

6,713

Related party receivable

2,935

-

Other receivables

1,088

1,138

Total

96,033

68,429

Financial liabilities

Trade payables

16

12,354

Accruals

7,339

5,465

Total

7,355

17,819

20.1 Financial risk management policies

The Board’s overall risk management strategy seeks to assist the Group in meeting its financial targets. Riskmanagement policies are approved and reviewed by the Board.

a) Credit risk

All cash and cash equivalents are held with AA rated financial institutions within Australia and therefore credit risk is considered minimal.

b) Liquidity risk

Liquidity risk arises from the possibility that the Group might encounter difficulty in settling its debts or otherwise meeting its obligations related to financial liabilities. The Group is not currently exposed to any significant liquidity risk on the basis it has access to additional cash through an equity funding agreement with the Commonwealth of Australia.

c) Market risk

Exposure to interest rate risks arises on interest-bearing financial assets and financial liabilities recognised at the end of the reporting period whereby a future change in interest rates will affect either the future cash flows or the fair value financial instruments.

At 30 June 2019, the Group had no interest-bearing financial liabilities.

20.2 Measurement of fair value

When measuring the fair value of an asset or a liability, the Group uses market observable data as far as possible. Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:

(i) Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities;

(ii) Level 2 - inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices); and

(iii) Level 3 - inputs for the asset or liability that are not based on observable market data (unobservable inputs).

If the inputs used to measure the fair value of an asset or a liability are categorised as different levels, then the fair value measurement is categorised in its entirety in the same level as the lowest level input that is significant to the entire measurement.

The Group recognised transfers between levels of the fair value hierarchy at the end of the reporting period during which the change occurred.

The carrying amounts of receivables and payables are assumed to approximate their fair value due to their short-term nature.

Further information about the assumptions made in measuring fair value is included in the accounting policy for equity-accounted investees.

Level 1

$'000

Level 2

$'000

Level 3

$'000

Total

$'000

30 June 2019

Property, plant and equipment

-

-

101

101

Assets under construction

-

-

124,127

124,127

Equity accounted investees

-

-

165,385

165,385

Related party receivable

-

-

2,935

2,935

Other receivables

-

-

1,088

1,088

Non-interest-bearing loans to related parties

-

-

8,628

8,628

Total

-

-

302,264

302,264

30 June 2018

Property, plant and equipment

-

-

135

135

Assets under construction

-

-

51,087

51,087

Equity accounted investees

-

-

153,145

153,145

Other receivables

-

-

1,138

1,138

Non-interest-bearing loans to related parties

-

-

6,713

6,713

Total

-

-

212,218

212,218

The table below shows reconciliation of opening balances to closing balances for fair value measurements in Level 3 of the fair value hierarchy. There has been no change in hierarchy during the current year.

2019

$'000

2018

$'000

Balance as at 1 July

212,218

176,256

Additions

77,856

36,329

Total gains and losses recognised in:

Profit and loss

12,190

(367)

Balances as at 30 June

302,264

212,218

20.3 Valuation techniques

The following describes the valuation technique used in measuring Level 3 fair values as well as the significant unobservable inputs used.

a) Discount Cashflow Method

The investment in Moorebank Precinct Land Trust was recognised at fair value, upon financial close. An independent valuer was engaged to provide an indicative valuation based the discounted cash flow method, assessing the indicative fair market value of the entity. The mid-point value, using a discount of 7.2 per cent was $270.4 million, with the MIC’s 65.63 per cent share being $177.5 million.

b) At cost

Property, plant and equipment, leasehold hold improvements, is held at cost less accumulated depreciation. The asset is amortised over the lease term of five years.