27 NOVEMBER 2009 NEW ZEALAND GAZETTE, No. 172 4187

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 2009 (2008: 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 Group is unable to utilise these facilities the Group has established committed credit facilities. There is:

• a 364 day Standby Facility for $250,000,000 which was not in use at 30 June 2009 or 30 June 2008;
• a three year Standby Facility for $250,000,000, effective 2 July 2008. This was not in use at 30 June 2009;
• a two year Revolving Cash Advance Facility for $200,000,000, effective 23 March 2009. This was not in use at 30 June 2009.

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.

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.

The notional gross contract amounts of cross currency interest rate swaps outstanding at balance date, by maturity banding, are:

| Receive leg | | |
| Within one year| (65,832) | (153,534) |
| One to two years| (245,761) | (224,130) |
| Two to five years| (436,769) | (517,544) |
| Greater than five years| - | - |
| Total receive leg| (624,356) | (895,208) |

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.