✨ Financial Statements Notes
TRANSPOWER NEW ZEALAND LIMITED LINES BUSINESS
NOTES TO THE FINANCIAL STATEMENTS continued
FOR THE YEAR ENDED 30 JUNE 2007
20. FINANCIAL INSTRUMENTS continued
Short Term investments
The Transpower Group from time to time invests surplus cash arising from its core operations and from active liquidity management in wholesale bank deposits and securities for periods of up to one year.
Off Balance Sheet financial assets and liabilities
Interest rate swaps
Interest rate swaps are used to change the interest rate structure on physical debt issued by the Group. The interest rate on debt is either converted from floating rate to fixed rate or vice versa through entering into an interest rate swap. In the normal course of the Group’s hedging activities interest rate swaps are entered into for periods of up to ten years.
The notional gross contract amounts of interest rate swaps outstanding at balance date:
| LINES BUSINESS | LINES BUSINESS | |
|---|---|---|
| 2007 | 2006 | |
| Interest rate swaps | 3,136,000 | 2,752,500 |
Cross currency interest rate swaps
Cross currency interest rate swaps are used to convert foreign currency denominated debt issued by the Group into New Zealand dollar denominated debt. Cross currency interest rate swap contracts eliminate foreign currency risk on the underlying debt by determining the New Zealand dollar equivalent of the interest payments and final principal exchange at the time of entering into the contract.
The principal amounts of cross currency interest rate swaps outstanding at balance date are:
| Cross currency interest rate swaps | 2007 | 2006 |
|---|---|---|
| Principal receivable | 462,552 | 410,035 |
| Principal payable | (583,374) | (441,977) |
Forward rate agreements
Forward rate agreements are used to fix interest rates on the underlying debt for periods commencing in the future. In the normal course of business the Group enters into forward rate agreements to fix interest rates on floating rate debt for intervals of three months.
The notional contract amounts of forward rate agreements outstanding as at 30 June 2007 was nil (2006: nil).
Interest rate options
The Group enters into interest rate options to manage interest rate repricing risk. The Group purchases interest rate options to minimise the impact on finance costs arising from floating rate debt if interest rates were to rise in the future. In the normal course of interest rate management, the sale of interest rate options is restricted by the requirement to simultaneously purchase an interest rate option.
| Interest rate options | 2007 |
|---|---|
| 100,000 |
Foreign exchange forward contracts
The Transpower Group uses foreign exchange forward contracts to fix the New Zealand dollar cost of foreign denominated capital equipment and stock purchases.
The contract amount of forward foreign exchange contracts outstanding at balance date are:
| Forward foreign exchange contracts | 2007 |
|---|---|
| 25,570 |
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Online Sources for this page:
VUW Te Waharoa —
NZ Gazette 2007, No 134
Gazette.govt.nz —
NZ Gazette 2007, No 134
✨ LLM interpretation of page content
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Transpower New Zealand Limited Lines Business Notes to the Financial Statements
(continued from previous page)
🏭 Trade, Customs & IndustryFinancial Instruments, Credit Risk, Liquidity Risk, Interest Rate Risk, Currency Risk, Risk Management Policies, Debt Facilities, Financial Risks, Counterparty Limits, Credit Ratings, Short Term Investments, Interest Rate Swaps, Cross Currency Interest Rate Swaps, Forward Rate Agreements, Interest Rate Options, Foreign Exchange Forward Contracts