Instruments used by the Group and fair values
The Group is party to derivative financial instruments in the normal course of business in order to hedge exposure to interest rates in accordance with the
Group’s financial risk management policies (refer to Note 2).
(i) Interest rate swap contracts – cash flow hedges
It is policy to protect the Group’s loans from exposure to increasing interest rates. Accordingly, the Group has entered into an interest rate swap contract
under which it receives interest at variable rates to pay interest at fixed rates. The contract is settled on a net basis and the net amount receivable or
payable at the reporting date is separately disclosed on the face of the statement of financial position.
The contract requires settlement of net interest receivable or payable every three months. The settlement dates coincide with the dates on which interest is
payable on the underlying debt.
As at 30 June 2010, there was one interest rate swap in place over US$100,000,000 (2009: US$200,000,000) at 2.15 per cent maturing in December 2010.
The average contracted fixed interest swap rate is 2.15 per cent per annum (2009: 2.15 per cent per annum). The variable rate is US$ LIBOR based on 90 day
rollovers. As at statement of financial position date the average variable rate was 0.54 per cent per annum (2009: 0.65 per cent per annum).
The following table details the notional principal amounts and remaining terms of interest rate swap contracts outstanding as at reporting date:
Outstanding floating Average contractedN otional principa l
for fixed contracts f ixed interest rate am ount
2010 2009 2010 2009
% % $’000 $’000
Less than 1 year 2.15 2.15 118,091 123,916
1 to 5 years - 2.15 - 123,816
The gain or loss from re-measuring the hedging instruments at fair value is deferred in equity in the hedging reserve, to the extent that the hedge is
effective, and re-classified into profit and loss when the hedging interest expense or income is recognised. Any ineffective portion is recognised in the
statement of comprehensive income immediately. In the year ended 30 June 2010 there was no impact to comprehensive income (2009: $Nil).