Page 138 - ar2013

CapitaRetail China Annual Report 2013 136 Clarity
Notes to the
Financial Statements
Year ended 31 December 2013
26 CAPITAL AND FINANCIAL RISK MANAGEMENT (continued)
Financial risk management (continued)
Interest rate risk
The Manager adopts a proactive interest rate management policy to manage the risk associated with changes
in interest rates on the Group’s loan facilities while also seeking to ensure that the ongoing cost of debt remains
competitive.
At 31 December 2013, the Group has interest rate swaps (“IRS”) with notional contract amount of $315.5 million
(2012: $250.5 million). The Group pays a fixed rate interest and receives a variable rate equal to the Swap Offer
Rate (“SOR”) on the notional contract amount. The Group classifies the IRS as cash flow hedges to hedge the
exposure to changes in the variability of interest rate fluctuations on certain of its term loans.
The term loans and the underlying IRS have the same terms and conditions.
The Manager proactively seeks to minimise the level of interest rate risk by locking the majority of the Group’s
borrowings at fixed rates. As at 31 December 2013, the Group has locked in approximately 61.0% (2012: 68.8%) of
its borrowings at fixed rates.
Fair value sensitivity analysis for fixed rate instruments
The Group does not account for any fixed rate financial liabilities at fair value through profit or loss and the Group
does not designate interest rate derivatives as hedging instruments under a fair value hedge accounting model.
Therefore a change in interest rates at the reporting date would not affect the statement of total return.
Cash flow sensitivity analysis for variable rate instruments
The net change in fair value of the interest component of IRS as at 31 December 2013 of $0.2 million (2012:
$0.7 million), representing the effective portion of the cash flow hedge, has been recognised directly in the
hedging reserves.
Effects of a 100 basis point* (“bp”) movement in interest rate at the reporting date as at 31 December 2013 would
increase/(decrease) statement of total return and Unitholders’ funds by the amounts shown below. This analysis
assumes that all other variables, in particular foreign currency rates, remain constant. The analysis is performed
on the same basis for 2012.
* 100 basis point is equivalent to 1 percentage point
Statement of total return Unitholders’ funds
100 bp
increase
$’million
100 bp
decrease
$’million
100 bp
increase
$’million
100 bp
decrease
$’million
Group and Trust
2013
Interest rate swaps – – 1.9 (1.9)
Variable rate instruments (0.5) 0.5 – –
Cash flow sensitivity (net) (0.5) 0.5 1.9 (1.9)
2012
Interest rate swaps – – 2.4 (2.4)
Variable rate instruments (1.5) 1.5 – –
Cash flow sensitivity (net) (1.5) 1.5 2.4 (2.4)