28 NOVEMBER 2008 NEW ZEALAND GAZETTE, No. 186 4893

TRANSPOWER NEW ZEALAND LIMITED LINES BUSINESS

The concentration of credit risk with respect to trade receivables is high due to the small number of customers comprising the Lines Business’s customer base. It is the Lines Business’s policy to perform credit evaluations on customers requiring credit and the Lines Business may in some circumstances require collateral. No collateral is held at 30 June 2008 (2007: nil).

Liquidity risk policy

To ensure the Lines Business has adequate funding facilities in place to support future operations, the Lines Business’s liquidity policy requires the Lines Business to have access to committed funding facilities (i.e. guaranteed funds), to cover the sum of all debt which matures over the next six months and peak cumulative anticipated operating cash flow requirements over the next six months.

To smooth the Lines Business’s refinancing requirements in future periods, committed debt facilities maturing in any 12 month period are not to exceed $500,000,000. No more than 50% of long term debt can mature within the next three years and at least 30% of long term debt must mature after five years.

(c) Financial Instruments That Manage Currency, Interest Rate and Liquidity Risk

The Directors have authorised the use of the following financial instruments to manage currency risk, interest rate risk and liquidity risk:

Term debt

The Lines Business has five active debt facilities: a European Commercial Paper programme, a Euro Medium Term Note programme, a Domestic Medium Term Note programme, an Australian Medium Term Note programme and a Domestic Multi-option Facility. The Lines Business uses these facilities to issue debt securities into different international debt markets.

In the event the Lines Business is unable to utilise these facilities the Lines Business has established a committed credit facility. This is a 364 day Standby Facility for $250,000,000 (which was not in use at 30 June 2008 or 30 June 2007). In addition, the Lines Business has established an additional 3 year standby facility for $250,000,000 effective 2 July 2008.

Term investments

The Lines Business 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.

Interest rate swaps

Interest rate swaps are used to change the interest rate structure on physical debt issued by the Lines Business. The interest rate on debt is either converted from floating rate to fixed rate or vice versa through entering into interest rate swaps. In the normal course of the Lines Business’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, by maturity banding, are:

Cross currency interest rate swaps

Cross currency interest rate swaps are used to convert foreign currency denominated debt issued by the Lines Business 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.