✨ Financial Statements Notes
29 FEBRUARY 2012
NEW ZEALAND GAZETTE, No. 25
713
Notes to and Forming Part of the Financial Statements
For the year ended 30 June 2011
GAS DIVISION
-
Interest rate collars
Interest rate collars are used to limit exposure to floating interest rate exposures on New Zealand floating rate debt. The collars are used to modify the interest rate profile in accordance with the Treasury Policy and are on matched terms. Hedge accounting is not applied to these collars. -
Foreign exchange contracts
The Division enters forward exchange contracts to fix the NZD amount payable on foreign currency purchases.
At each roll hedges above are on matched terms. The Division’s policy is to raft any fixed rate debt, thus giving a totally floating portfolio, then re-hedge as per the parameters in the Treasury Policy. This has had the effect that some fixed rate hedges are applied against floating rate hedges, in line with NZ IAS 39 these are not able to be designated as effective hedges for accounting purposes and thus movements in the mark to market value of these in the profit or loss. They are all implemented on matched terms.
The Division’s New Zealand dollar and foreign currency fixed rate debt is converted to floating New Zealand dollar debt through the use of derivatives, with these exactly matching the term and nominal value of the debt. At the 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 allows for the changes due to movements in interest rates or currency rates. This valuation method takes into account the interest rate curve and foreign exchange rates by calculating the discounted future cash flows on derivatives as at the reporting date. This method assumed a constant credit rating of all parties to the contract.
The fair value of financial instruments is disclosed in the financial statements as follows:
| 30 June 2011 NZ$000 | 30 June 2010 NZ$000 | |
|---|---|---|
| Other current financial assets | ||
| Interest rate swap | 380 | |
| 390 | ||
| Other non-current financial assets | ||
| Interest rate swap | 1,811 | |
| 1,649 | ||
| Other current financial liabilities | ||
| Foreign exchange contracts | 12 | |
| Interest rate swap | 1,643 | |
| 7,256 | 489 | |
| Other non-current financial liabilities | ||
| US cross currency interest rate swap | ||
| 17,325 | 1,203 | |
| 12,276 | 13,616 | |
| 28,501 | 14,919 | |
| Net fair value of assets/(liabilities) | ||
| (29,445) | (15,369) |
b) Currency swaps
i) Under existing swap contracts, the Group 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 Group 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 30 June 2011
| Average Interest rate | Average exchange rate | Contract Value NZ$000 | Fair Value NZ$000 | |
|---|---|---|---|---|
| Two to five years | ||||
| BKBM + 98 basis points | 0.5947 | 38,874 | (7,686) | |
| Over five years | ||||
| BKBM + 166 basis points | 0.7377 | 88,214 | (9,636) | |
| 127,188 | (17,322) |
Outstanding contracts as at 30 June 2010
| Average Interest rate | Average exchange rate | Contract Value NZ$000 | Fair Value NZ$000 | |
|---|---|---|---|---|
| Two to five years | ||||
| BKBM + 90 basis points | 0.5947 | 20,000 | (964) | |
| Over five years | ||||
| BKBM + 88 basis points | 0.5947 | 42,501 | (1,708) | |
| 62,501 | (1,362) |
ii) Forward Exchange Contracts
The Group enters into Forward Exchange Contracts for the purposes of hedging capital expenditure. All contracts are less than one year in duration.
The following table details the contracts swaps outstanding as at reporting date:
Outstanding contracts as at 30 June 2011
| Average Contract Rate | Contract Value NZ$000 | Fair Value NZ$000 | |
|---|---|---|---|
| USD contracts less than one year | |||
| 0.7652 | 145 | (12) |
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NZ Gazette 2012, No 25
✨ LLM interpretation of page content
💰
Powerco Gas Division Financial Statements
(continued from previous page)
💰 Finance & RevenueFinancial Instruments, Interest Rate Collars, Foreign Exchange Contracts, Hedge Accounting, Treasury Policy