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New Zealand Gazette – 1998 – No. 193

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✨ Financial Statements Notes

30 NOVEMBER NEW ZEALAND GAZETTE 4551

TRANSPOWER NEW ZEALAND LIMITED GROUP

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 1998

21. FINANCIAL INSTRUMENTS

(a) Financial risks

Transpower is subject to a number of financial risks which arise as a result of Transpower having a debt portfolio of $1,364,588,000 as at 30 June 1998 ($1,472,497,000 as at 30 June 1997) denominated in both New Zealand dollars and foreign currency, making purchases from foreign suppliers and having contractual agreements with customers. These financial risks comprise:

Interest rate risk

Interest rate risk is the risk of adverse impact on the present and future finance costs of the Company arising from the interaction of interest rate movements with Transpower’s debt portfolio.

Currency risk

Currency risk is the risk of adverse impact of exchange rate movements, which determine the New Zealand dollar cost of foreign denominated expenditures and the New Zealand dollar value of debt issued in foreign currencies.

Credit risk

Credit risk is the risk of adverse impact on Transpower through the failure of a third party bank, financial institution or customer to meet its financial obligations. Financial instruments which subject Transpower to credit risk include bank balances, receivables, investments, interest rate swaps, cross currency interest rate swaps, interest rate options, forward rate agreements, foreign exchange forward contracts and transmission hedges.

Liquidity risk

Liquidity risk is the risk of adverse impact on Transpower arising from the Company’s inability to meet its monetary obligations in an orderly manner. This might result from the Company not maintaining adequate funding facilities or being unable to renew or replace existing facilities when they mature.

Transmission hedge pricing risk

Transmission hedge pricing risk is the risk of adverse impact on the present and future revenue of the Company arising from Transpower offering transmission hedge contracts for future periods. This risk is influenced by transmission constraints and generation patterns.

To manage and limit the effect of these financial risks the Transpower Board of Directors have approved policy guidelines and authorised the use of various financial instruments. The policy adopted by the Board prohibits the use of financial instruments for speculative purposes. All off balance sheet financial instruments must be directly related to underlying physical debt or firm capital commitments on Board approved projects.

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VUW Te Waharoa — NZ Gazette 1998, No 193

NZLII — NZ Gazette 1998, No 193

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✨ LLM interpretation of page content

🏭 Transpower New Zealand Limited Notes to the Financial Statements (continued from previous page)

Domain🏭 Trade, Customs & Industry
KeywordsFinancial Instruments, Interest Rate Risk, Currency Risk, Credit Risk, Liquidity Risk, Transmission Hedge Pricing Risk, Financial Risks, Debt Portfolio, Policy Guidelines

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