✨ Financial Statements
NEW ZEALAND GAZETTE, No. 184 28 NOVEMBER 2011
TRANSPOWER NEW ZEALAND LIMITED LINES BUSINESS
In addition to the above, the Group’s liquidity policy requires the Group to have access to committed funding facilities, to cover the sum of all debt which matures over the next six months plus peak cumulative anticipated operating cash flow requirements over the next six months. To meet this policy requirement Transpower has:
- a three year Standby Facility for NZD $250 million, effective 21 December 2010. This was undrawn at 30 June 2011; and
- a three year Standby Facility for NZD $250 million, effective 26 May 2010. This was undrawn at 30 June 2011 or 30 June 2010.
At 30 June 2011, Transpower exceeded this self imposed limit by $20 million. Extra short term funds were held while Transpower completed a review of its capital structure and dividend policy.
With the capital structure completed, Transpower will replace short term funds with long dated debt issues. The liquidity risk from the high levels of short term debt and the significant build programme are mitigated by Transpower’s standby facilities.
Investments
The 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.
ii. Interest rate risk
Interest rate risk is the risk of an adverse impact on the present and future finance costs of the Group arising from an increase in interest rates. Transpower uses various financial instruments to fix interest rates to mitigate interest rate risk.
The Group’s policy sets annual minimum and maximum hedging parameters expressed as a percentage of forecast debt. This policy ensures that the Group’s costs of funds will be reasonably predictable from year to year. Interest rate swaps and options are used to change the interest rate structure on existing and forecast debt and cross currency interest rate swaps entered into.
At 30 June 2011 the following interest rate parameters are in place relating to the economic hedging of the forecast total debt of the Group:
| Minimum % | Maximum % | |
|---|---|---|
| 0 - 1 years | 60 | 100 |
| 1 - 3 years | 40 | 100 |
| 3 - 5 years | 20 | 100 |
| 5 - 7 years | 0 | 80 |
| 7 - 10 years | 0 | 60 |
| 10+ years | 0 | 30 |
iii. Currency risk - debt
Currency risk on debt is the risk of adverse impact of exchange rate movements, which determine the NZD cost of debt (principal and interest) issued in foreign currencies.
Foreign currency borrowings are converted into a NZD denominated exposure at the time of commitment to drawdown. Currency risk on foreign currency denominated borrowings is managed using cross currency interest rate swaps and basis swaps.
Cross currency interest rate swaps are used to convert foreign currency denominated debt issued by the Group into NZD denominated debt. Cross currency interest rate swaps eliminate foreign currency risk on the underlying debt by determining the NZD equivalent of the interest payments and final principal exchange at the time of entering into the swap.
Basis swaps are used to eliminate currency risk when the Group issues bonds in a foreign currency. In a basis swap, the Group receives the offshore currency floating interest rate and pays the NZD floating interest rate.
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NZ Gazette 2011, No 184
✨ LLM interpretation of page content
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Provisions for Transpower New Zealand Limited
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💰 Finance & RevenueFinancial statements, Debt, Financial instruments, Risk management, Transpower