✨ Financial Statements Notes
Notes to and Forming Part of the Financial Statements
For the year ended 31 March 2007
POWERCO
ELECTRICITY DIVISION
7 Interest rate swaps
Historical swaps floating to fixed swaps which are offset by (6) above on matched term and rell basis. Hedge accounting is not applied to these swaps.
The notional value of the swap is $44,949,254 (30 June 2006: $57,600,000)
The fair value of the swap is $1,452,814 (30 June 2006: $3,168,372)
Total notional principal of instruments recognised: $1,183,962,030 (30 June 2006: $1,498,511,532)
Total fair value of instruments recognised: -$28,476,296 (30 June 2006: -$29,233,710)
All cash flow hedges above are on matched terms. The maturities are the same as the financial assets and liabilities recorded in note 1. The Group's policy is to re-float any fixed rate debt, thus giving a totally floating portfolio, then re hedge as per parameters in the treasury policy. This has the effect that some fixed rate hedges are applied against floating rate hedges. In line with NZ IAS39 these are not hedge accountable and thus movements in the market to market value of these is passed through to the Income Statement.
The Group's NZD and foreign currency fixed rate debt is converted to floating NZD debt through the use of derivatives, with these exactly matching the term and nominal value of the debt. At this point of issue the nominal value of the bonds was equivalent to the fair value, and the fair value of the derivative was zero. The marking to market of the derivatives outlines movements in interest rates or currency rates.
Powerco bonds are able to be traded on the NZDX and an active secondary market exists. This valuation method assumes a constant credit rating.
The fair value of financial instruments is disclosed in the financial statements as follows:
| 31 March 2007 | 30 June 2006 | |
|---|---|---|
| NZ$000 | NZ$000 | |
| Other financial assets | ||
| Current interest rate swaps | 2,094 | 665 |
| Non-current interest rate swaps | 12,083 | 3,757 |
| 14,177 | 4,422 |
| Other financial liabilities | | |
| Non-current US cross currency interest rate swap | 29,766 | 21,361 |
| Non-current interest rate swaps | 12,887 | 12,235 |
| | 42,653 | 33,596 |
Net fair value of assets / (liabilities) | (28,476) | (29,234) |
b) Currency swaps
Under currency swap contracts, the consolidated entity agrees to exchange specified principal and interest foreign currency amounts at an agreed future date at a specified exchange rate (fixed for floating). Such contracts enable the consolidated entity to mitigate the risk of adverse movements in foreign exchange rates.
The following table details the currency swaps outstanding as at reporting date:
Outstanding contracts as at 31 March 2007
| Average interest rate | Average exchange rate | Contract Value | Fair Value | |
|---|---|---|---|---|
| BKBM + 88 basis points | 0.5947 | NZ$000 | NZ$000 | |
| Over five years | 164,257 | (29,766) |
Outstanding contracts as at 30 June 2006
| Average interest rate | Average exchange rate | Contract Value | Fair Value | |
|---|---|---|---|---|
| BKBM + 88 basis points | 0.5947 | NZ$000 | NZ$000 | |
| Over five years | 211,872 | (21,361) |
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Online Sources for this page:
VUW Te Waharoa —
NZ Gazette 2008, No 46
Gazette.govt.nz —
NZ Gazette 2008, No 46
✨ LLM interpretation of page content
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Notes to Financial Statements for Powerco Electricity Division
(continued from previous page)
🏭 Trade, Customs & Industry25 February 2008
Financial Instruments, Interest Rate Swaps, Currency Swaps, Fair Value, Accounting Policies