NOTES TO THE
FINANCIAL STATEMENTS
Year ended 31 December 2014
6
FINANCIAL DERIVATIVES (CONT’D)
Forward foreign exchange contracts
The Group manages its exposure to foreign currency movements on its net income denominated in Japanese Yen
from its investments in Japan by using forward foreign exchange contracts to provide a hedge to the distribution
of income from its investment in Japan, net of Japanese Yen financing costs.
At the reporting date, the Group has outstanding forward foreign exchange contracts with aggregate notional
amounts of approximately $32.9 million (2013: $32.8 million). The change in fair value of $0.1 million gain (2013:
$3.2 million gain) was charged to the Statement of Total Return.
Cross currency interest rate swap
During the year, the Group had entered into cross currency interest rate swap (“CCIRS”) with notional amount of
$75.2 million (2013: nil) to manage its foreign currency risk and interest rate risk for the purpose of refinancing the
maturing Japanese Yen debts using Singapore dollar facilities. To maintain a natural hedge, the Group utilised a
CCIRS to realign the $75.2 million Singapore dollar revolving credit facility back into an effective JPY6,250 million
Japanese Yen denominated loan to match its underlying Japanese Yen denominated assets.
During the financial year, the Group had in-substance bifurcated the CCIRS and applied hedge accounting for net
investment hedge and cash flow hedge, where the changes in fair value of the CCIRS of $4.7 million gain and $0.1
million loss were recognised in the foreign currency translation reserve and hedging reserve, respectively.
Offsetting financial assets and financial liabilities
The Group’s derivative transactions are entered into under International Swaps and Derivatives Association 2002
Master Agreements (“ISDA Master Agreements”) or long-form confirmation with various bank counterparties. In
general, under such ISDA Master Agreements the amounts owed by each counterparty in respect of the same
transactions outstanding in the same currency under the agreement are aggregated into a single net amount that
is payable by one party to the other. In certain circumstances, for example when a credit event such as a default
occurs, all outstanding transactions under the agreement are terminated, the termination value is assessed and
only a single net amount is due or payable in settlement of all outstanding transactions.
The above ISDAMaster Agreements or long-form confirmation do not meet the criteria for offsetting in the statement
of financial position. This is because they create a right of set-off of recognised amounts that is enforceable only
following an event of default, insolvency or bankruptcy of the Group or the counterparties. In addition the Group
and its counterparties do not intend to settle on a net basis or to realise the assets and settle the liabilities
simultaneously in its normal course of business.
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PA R K WAY L I F E R E I T
