✨ Financial Instruments and Risks
28 NOVEMBER 2008 NEW ZEALAND GAZETTE, No. 186 4895
TRANSPOWER NEW ZEALAND LIMITED LINES BUSINESS
(d) Maximum Credit Risk Exposure
The maximum credit exposure in respect of non-derivative assets is best represented by their carrying value. For derivative financial instruments the maximum credit exposure is best represented by the net mark to market valuation by counterparty where the valuation is positive, as follows:
| | LINES BUSINESS |
|------------------------------------|---------------|---------------|
| | 2008 | 2007 |
| | $'000 | $'000 |
| Interest rate swaps | 77,410 | 102,038 |
| Cross currency interest rate swaps | 52,830 | - |
| Interest rate options | 1,890 | - |
| Foreign exchange forward contracts | 935 | - |
| Total | 131,175 | 102,038 |
The credit risk arising from the use of derivative products is minimised by the netting and set-off provisions contained in the Lines Business’s ISDA agreements. The Lines Business further manages this risk by only entering into transactions with counterparties that fall within the Lines Business’s credit risk management policy as outlined in section (b) Financial Risk Management Policies, of this note.
(e) Fair Value and Classifications
All financial instruments, except loans and receivables, are carried at fair value in the Balance Sheet. Refer to Note 9 Financial Instrument Designation for the designation of the above instruments.
For loans and receivables the fair value is materially similar to their cost due to the short term nature of the balance.
Fair value represents the amount which would, in the course of the normal operation of the financial markets, extinguish all current and future contractual obligations arising in respect of a particular financial instrument.
The methods used for determining fair values are discussed in Note 1 Accounting Policies.
(f) Interest Rate Repricing Analysis
The following table covers the Lines Business’s total debt portfolio, including the effect of derivative financial instruments, when interest rates will be repriced and the current weighted average interest rate of each maturity. The Lines Business will transact further interest rate hedging in advance of the repricing date to fix interest rates on the Lines Business debt portfolio within the policy parameters adopted by the Board.
Trade receivables/payables, other receivables and other liabilities have not been included in the table below as they are not interest rate sensitive.
For the purpose of repricing, debt denominated in foreign currencies is stated after applying cross currency interest rate swaps.
The amounts in the tables below are at amortised cost.
| LINES BUSINESS 2008 | Effective Interest Rate | Within one year | One to two years | Two to five years | Greater than five years | Total |
|---|---|---|---|---|---|---|
| $'000 | $'000 | $'000 | $'000 | $'000 | ||
| Assets | ||||||
| Cash | 7.15% | 11,014 | - | - | - | 11,014 |
| Short term investments | 8.33% | 75,049 | - | - | - | 75,049 |
| Long term investments | 7.93% | - | - | 14,000 | 10,000 | 24,000 |
| 86,063 | - | 14,000 | 10,000 | 110,063 | ||
| Liabilities | ||||||
| Debt | 8.62% | (166,938) | - | (351,963) | (658,382) | (1,177,283) |
| Derivatives | ||||||
| Interest rate swaps | 2,183,368 | (70,000) | (146,500) | (1,966,868) | - | |
| Interest rate options | - | - | 100,000 | 100,000 | ||
| 2,183,368 | (70,000) | (146,500) | (1,866,868) | 100,000 | 100,000 |
| Repricing Profile | | 2,102,493 | (70,000) | (484,463) | (2,515,250) | (967,220)|
The interest rate on debt as amended by interest rate swaps is 7.00%.
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NZ Gazette 2008, No 186
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Financial Instruments and Risks for Transpower Lines Business
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🏭 Trade, Customs & IndustryFinancial Risks, Interest Rate Risk, Currency Risk, Credit Risk, Liquidity Risk, Financial Instruments