PSA International Pte Ltd Annual Report 2010
N otes to the Financial Statements
Year ended 31 December 2010
The Group has raised funding with issuance of debt capital market instruments and bank loans to diversify funding sources. Interest rate swaps, which are denominated in Singapore dollars, US dollars and Euro, have been entered to achieve an appropriate mix of fixed and floating rate exposures within the Group’s policy.
Fair value hedge
A portion of the fixed rate Singapore dollar notes with a notional amount of $150.0 million (2009: $300.0 million) has been hedged against the exposure to changes in the fair value of the notes. In connection with this, the Group entered into interest rate swap contracts to receive fixed rate interest and pay variable rate on the $150.0 million notes. The Group is therefore exposed to market fluctuations in interest rates on the $150.0 million notes and the corresponding interest rate swap contracts. The net fair value of the swaps as at 31 December 2010 comprises assets of $2.2 million (2009: assets of $3.5 million and liabilities of $0.4 million).
Cash flow hedge
A portion of the floating rate bank loans amounting to $0.52 billion (2009: $0.81 billion) has been hedged against the exposure to market fluctuations in interest rate payments. In connection with these loans, the Group entered into interest rate swap contracts to receive variable rate interest and pay fixed rate on the notional amounts. Both the floating rate bank loans and interest rate swaps have the same terms and conditions. The net fair value of the swaps as at 31 December 2010 comprises assets of $8.0 million and liabilities of $53.6 million (2009: assets of $10.0 million and liabilities of $50.0 million).
At 31 December 2010, it is estimated that a general increase of 100bps in interest rates would decrease the Group’s profit before tax by approximately $33.3 million (2009: $49.9 million). A general decrease of 100bps in interest rates would have the equal but opposite effect on the Group’s profit before tax. The general increase of 100bps in interest rates is not expected to have significant impact on the Group’s equity. This analysis assumes that all other variables, in particular foreign currency rates, remain constant and does not take into account the associated tax effects and share of non-controlling interest.
Foreign currency risk
The Group is exposed to foreign currency risk on sales, purchases, bank deposits, bank loans and fixed and floating rate notes that are denominated in a currency other than the functional currencies of the Group entities. The functional currencies of the Group entities are primarily Singapore dollars, Euro and Renminbi.
In respect of other monetary assets and liabilities held in currencies other than the functional currencies of the Group entities, the Group monitors the net exposure.