H. FUNDING AND RELATED ITEMS
H1 BORROWINGS
H1.1 Accounting policies
 
Borrowings   Interest-bearing loans, are initially measured at fair value, net of transaction costs. Any difference between the proceeds (net of transaction costs) and the settlement or redemption amount of borrowings, is recognised over the term of the borrowings, in accordance with the groupís accounting policy for borrowing costs. Subsequently, they are measured at amortised cost using the effective interest method.   Refer: below
H1.2 Changes in accounting policies and disclosures
 
IFRS 9: Financial instruments   Borrowings are affected by the groupís application of IFRS 9: Financial instruments. The adoption of IFRS 9 has not had a significant effect on the groupís accounting policies related to financial liabilities and derivative financial instruments as the group does not apply hedge accounting to its derivative financial instruments. This note should be read in conjunction with note A3.1 Ė Financial instruments.    
H1.3 Carrying value
 
  GROUP     COMPANY  
  30 June 2019
R000
30 June 2018
R000
    30 June 2019
R000
30 June 2018
R000
 
Profile              
Secured bank loans  4 229 325  5 302 214      1 558 308  599 539  
Unsecured 3 099 476 2 582 780     3 860 601 3 110 864  
   Unsecured loans 233 041     761 125 761 125  
   Unsecured debt capital market funding (DCM) 3 099 476 2 349 739     3 099 476 2 349 739  
Total borrowings 7 328 801 7 884 994     5 418 909 3 710 403  
Maturity profile              
Non-current  6 320 801  7 815 651      4 410 909  2 949 278  
   Bank loans 4 029 325 5 302 214     1 358 308 599 539  
   DCM funding 2 291 476 2 349 739     2 291 476 2 349 739  
   Non-controlling shareholder/subsidiary 163 698     761 125  
Current 1 008 000 69 343     1 008 000 761 125  
   Bank loans 200 000     200 000  
   DCM funding 808 000     808 000  
   Non-controlling shareholder/subsidiary 69 343     761 125  
Total borrowings 7 328 801 7 884 994     5 418 909 3 710 403  
H1.4 Individual facilities
 
                  GROUP   COMPANY  
            Interest rate   Nominal 30 June
2019
30 June
2018
  30 June
2019
30 June
2018
 
Bank loans Facility Maturity
date
Initial
term
Security Base
currency
at 30 June 2019
%
  interest rate
%
R000 R000   R000 R000  
Rand Merchant Bank R200m Nov 2019 5 years Secured ZAR 8,52   3-month JIBAR + 1,5 200 000 200 000   200 000 200 000  
Old Mutual Specialised Finance Proprietary Limited R400m Sep 2022 7 years Secured ZAR 8,57   3-month JIBAR + 1.55 399 649 399 539   399 649 399 539  
The Standard Bank of South Africa Limited R959m Jun 2023 4 years Secured ZAR 8,67   3-month JIBAR + 1,65 958 658   958 658  
The Standard Bank of South Africa Limited R500m* Jun 2023 4 years Secured ZAR 8,81   Prime less 1,44 1   1  
Rand Merchant Bank USD23m May 2021 3 years Secured USD 4,82   LIBOR + 2,3 247 577 228 336    
The Standard Bank of South Africa Limited USD100m Aug 2019 5 years Secured USD       1 370 070    
The Standard Bank of South Africa Limited USD111m Jul 2020 5 years Secured USD 4,37   LIBOR +2,47 (fixed) 1 574 518 1 524 663    
Standard Finance (Isle of Man) Limited USD60m Oct 2020 3 years Secured USD 4,82   LIBOR + 2,24 848 922 822 042    
Stanbic IBTC Bank PLC USD31,6m Jan 2021 3 years Secured USD 8,83 and 7,83 Facility A: 3-month LIBOR + 433 150    
               6,25; facility B: 3-month            
Investec Asset Management Proprietary Limited USD23,7m Jan 2021 3 years Secured USD 8,83 and 7,83 LIBOR + 5,25 324 414    
                  4 229 325 5 302 214   1 558 308 599 539  
DCM funding                            
HILB04 R450m Nov 2019 6 years Unsecured ZAR 8,56   3-month JIBAR + 1,54 450 000 450 000   450 000 450 000  
HILB05 R358m Jul 2019 3 years Unsecured ZAR 8,71   3-month JIBAR + 1,69 358 000 357 940   358 000 357 940  
HILB06 R425m Jul 2020 4 years Unsecured ZAR 8,81   3-month JIBAR + 1,79 424 947 424 894   424 947 424 894  
HILB07 R317m Jul 2021 5 years Unsecured ZAR 8,92   3-month JIBAR + 1,90 316 937 316 905   316 937 316 905  
HILB08 R452m Mar 2023 5 years Unsecured ZAR 8,62   3-month JIBAR + 1,60 451 831 452 000   451 831 452 000  
HILB09 R348m Mar 2025 7 years Unsecured ZAR 8,92   3-month JIBAR + 1,90 347 856 348 000   347 856 348 000  
HILB010 R250m Mar 2022 3,5 years Unsecured ZAR 8,46   3-month JIBAR + 1,44 249 905   249 905  
HILB011 R150m Mar 2024 5 years Unsecured ZAR 8,77   3-month JIBAR + 1,75 150 000   150 000  
HILB012 R350m Mar 2024 5 years Unsecured ZAR 8,72   3-month JIBAR + 1,70 350 000   350 000  
                  3 099 476 2 349 739   3 099 476 2 349 739  
Shareholder funding Facility Expiry date   Security Currency Interest rate   Interest rate            
AIH International Limited(1) USD17m Mar 2021   Unsecured USD 10,08   10,08 163 698    
AIH International Limited(1)   Mar 2021   Unsecured USD       69 343      
African Land Limited   (2)   Unsecured ZAR         761 125 761 125  
Total borrowings                 7 328 801 7 884 994   5 418 909 3 710 403  
*   Total group undrawn facilities at year end amount to:             R499m    
  The above loans are secured against investment property as set out in note E1.7 – Mortgaged properties. Interest on all loans is paid monthly or quarterly as applicable. Capital is repayable on the loan maturity date.
(1) AIH (non-controlling shareholder of Gruppo Investments Nigeria Limited) – the loans are disclosed under liabilities associated with assets held-for-sale at 30 June 2019.
(2) The African Land loan is repayable on a minimum of 12 months’ written notice.
H1.5 Movement reconciliation
 
  GROUP     COMPANY  
  30 June 2019 
R000 
30 June 2018 
R000 
    30 June 2019 
R000 
30 June 2018 
R000 
 
Opening balance at 1 July  7 884 994  8 900 638        3 710 403  4 874 902    
Foreign exchange movement  161 393  186 303        –  –    
Capital raised during the year  1 708 077  2 600 502        1 708 077  800 255    
Raising fees – amortised  429  –        429  –    
Repayments during the year  (1 414 851) (3 871 791)       –  (1 964 754)   
Net interest accrued  25 862  –        –  –    
Transferred to held-for-sale  (1 056 507) –        –  –    
Transferred to current liabilities  –  69 343        –  –    
Fair value adjustment  19 404  –        –  –    
Balance at the end of the year  7 328 801  7 884 994        5 418 909  3 710 403    
H2 DERIVATIVES
H2.1 Accounting policies
 
Derivatives Derivatives are initially measured at fair value and are subsequently remeasured at fair value. Any directly attributable transaction costs are recognised in profit or loss as incurred.
 

Derivative instruments comprise interest rate swaps and exchange rate zero cost collars (put and call options). The interest rate swaps are used to hedge interest rate exposure on long-term debt facilities and corporate bonds. Zero cost collars are used to hedge the exchange rate in anticipation of receipt of dividends from Hystead and Hyprop Mauritius.

Further disclosure on the designation of the interest rate swaps and their risk mitigation role is provided in note M3Interest rate risk and sensitivity.

        GROUP     COMPANY  
    Note   30 June 2019 
R000 
30 June 2018 
R000 
    30 June 2019 
R000 
30 June 2018 
R000 
 
H2.2 Net carrying value                  
  Currency collars    H2.4       3 310    (1 722)         3 310    (1 722)   
   Interest rate swaps  H2.5     (67 563) (16 676)       (66 734) (24 113)   
   Total derivatives        (64 253) (18 398)       (63 424) (25 835)   
H2.3  Maturity profile                            
   Non-current assets          619    6 846          619    224    
   Current assets        2 691  815        2 691  –    
   Non-current liabilities        (60 224) (24 060)       (59 408) (24 060)   
   Current liabilities        (7 339) (1 999)       (7 326) (1 999)   
   Total derivatives        (64 253) (18 398)       (63 424) (25 835)   
H2.4  Currency collars                            
H2.4.1  Net carrying value                            
   Non-current assets          619    –          619    –    
   Current assets        2 691   –        2 691  –    
   Current liabilities        –  (1 722)       –  (1 722)   
   Total derivatives        3 310  (1 722)       3 310  (1 722)   
H2.4.2  Movement reconciliation                            
   Opening balance at 1 July          (1 722)   (80)         (1 722)   (80)   
      Additions        3 310  (757)       3 310  (757)   
      Utilised         1 722   –        1 722   –    
      Fair value adjustment        –  (885)       –  (885)   
   Balance at the end of the year        3 310  (1 722)       3 310  (1 722)   
H2.4.3 Individual instruments
 
      GROUP     COMPANY  
Counterparty bank Expiry date Nominal value
EUR000
30 June 2019
R000
30 June 2018 
R000 
    30 June 2019
R000
30 June 2018 
R000 
 
Standard Bank Sep 18 1 000 (757)     (757)  
Standard Bank Nov 18 1 500 (965)     (965)  
RMB Sep 19 2 400 819 –      819 –   
RMB Jan 20 2 000 580 –      580 –   
RMB Jan 20 2 000 660 –      660 –   
RMB Apr 20 2 000 632 –      632 –   
RMB Jul 20 2 000 619 –      619 –   
Total currency collars     3 310 (1 722)     3 310 (1 722)  
H2.5 Interest rate swaps
H2.5.1 Net carrying value
 
  GROUP     COMPANY  
  30 June 2019 
R000 
30 June 2018 
R000 
    30 June 2019 
R000 
30 June 2018 
R000 
 
Non-current assets  –  6 846        –  224    
Current assets  –  815        –  –    
Non-current liabilities  (60 224) (24 060)       (59 408) (24 060)   
Current liabilities  (7 339) (277)       (7 326) (277)   
Total interest rate swaps  (67 563) (16 676)       (66 734) (24 113)   
H2.5.2 Movement reconciliation
 
  GROUP     COMPANY  
  30 June 2019 
R000 
30 June 2018 
R000 
    30 June 2019 
R000 
30 June 2018 
R000 
 
Opening balance at 1 July  (16 676) (47 073)       (24 113) (40 515)   
Foreign exchange movement  3 684  (330)       –  –    
Additions  (5 931) 6 607        (5 931) 757    
Expiry  (554) (8 883)       278  –    
Fair value adjustment  (48 086) 33 003        (36 968) 15 645    
Balance at the end of the year  (67 563) (16 676)       (66 734) (24 113)   
H2.5.3 Individual instruments
 
  Nominal
amount
Expiry
date
Fixed
rate
payable
%
Variable
rate
receivable
GROUP     COMPANY  
Counterparty Bank 30 June 2019 
R000 
30 June 2018 
R000 
    30 June 2019
R000
30 June 2018
R000
 
Standard Bank R100m Aug 18 8,02 3-month JIBAR –  (277)     –  (277)  
Standard Bank R100m Nov 19 8,04 3-month JIBAR (496) (1 256)     (496) (1 256)  
Standard Bank R100m Feb 20 8,50 3-month JIBAR (1 148) (2 142)     (1 148) (2 142)  
Standard Bank R450m Oct 20 7,85 3-month JIBAR (6 903) (5 270)     (6 903) (5 270)  
Standard Bank R958m Jun 23 7,04 3-month JIBAR (4 814) –      (4 814) –   
Standard Bank R300m Oct 23 7,82 3-month JIBAR (10 127) (232)     (10 127) (232)  
Standard Bank R100m May 24 7,85 3-month JIBAR (3 455) 224     (3 455) 224  
Standard Bank R350m Mar 24 7,52 3-month JIBAR (7 348) –      (7 348) –   
Standard Bank R150m Mar 24 7,52 3-month JIBAR (3 149) –      (3 149) –   
RMB R200m Sep 19 7,73 3-month JIBAR (337) (1 380)     (337) (1 380)  
Nedbank R250m Jan 20 8,54 3-month JIBAR (2 905) (5 672)     (2 905) (5 672)  
Nedbank R250m Jan 20 8,29 3-month JIBAR (2 440) (4 631)     (2 440) (4 631)  
Nedbank R500m Jan 21 7,43 3-month JIBAR (5 500) (883)     (5 500) (883)  
Nedbank R500m Sep 21 7,61 3-month JIBAR (9 015) (1 536)     (9 015) (1 536)  
Nedbank R500m Oct 21 7,55 3-month JIBAR (9 097) (1 058)     (9 097) (1 058)  
Standard Bank USD17,8m Nov 18 4,26 3-month LIBOR –  831      –  –   
Standard Bank USD27,1m Oct 20 2,11 3-month LIBOR (817) 816      –  –   
RMB USD4,98m May 20 2,10 3-month LIBOR (13) 5 790      –  –   
Total interest rate swaps         (67 563) (16 676)     (66 734) (24 113)  
H3 FINANCIAL GUARANTEES
H3.1 Accounting policies
 

Financial guarantees are contracts that require the group to make specified payments to reimburse the holder for a loss that it incurs because a specified debtor fails to make payment when it is due in accordance with the original or modified terms of a debt instrument. Liabilities under financial guarantees are recognised initially at fair value and subsequently as follows:

  • From 1 July 2018: at the higher of the loss allowance determined in accordance with IFRS 9 (see note M5.2.3.1) and the amount initially recognised less, when appropriate, the cumulative amount of income recognised in accordance with the principles of IFRS 15: Revenue from contracts with customers
  • Before 1 July 2018: at the higher of the amount determined in accordance with IAS 37: Provisions, contingent liabilities and contingent assets and the amount initially recognised less, when appropriate, cumulative amortisation recognised in accordance with IAS 18: Revenue.

Management assessed the obligations under the guarantees and concluded that these meet the definition of financial guarantees, and the change in fair value of the guarantees represents a charge to profit or loss.

H3.2 Profile
 
USD guarantees The company has provided guarantees to banks that have provided funding to Hyprop Mauritius (a wholly owned subsidiary) and Hystead. The guarantees are secured by mortgage bonds over certain of the companyís South African investment properties as disclosed in note E1.8 Ė Mortgaged properties. Details of the secured loans are disclosed in note H1.4. On consolidation the USD guarantees are eliminated as the underlying loans are reflected on the statement of financial position.
EUR guarantees

Hyprop and PDI Investment Holdings Limited (PDI) have guaranteed EUR400,8 million of loans advanced by banks to Hystead as follows:

Hyprop EUR360,8 million
PDI EUR40 million

PDI has provided back-to-back guarantees to Hyprop for a further EUR46,8 million (2018: EUR46,8 million) (equivalent to 11,7% of the EUR408,0 million guaranteed debt).

For the EUR73,2 million of debt (2018: EUR73,2 million) (18,3% of the EUR400,8 million guaranteed debts) which Hyprop has guaranteed in excess of its pro rata 60% interest in Hystead, Hyprop receives 60% of the related dividends declared to PDI from Hystead, which equates to 11% (60% x 18,3%) of the dividends paid by Hystead, as a guarantee fee (the credit enhancement fee).

This agreement is in place until May 2021, when the shareholders’ agreement between Hyprop and PDI, as shareholders in Hystead, expires.

During the year, loans of EUR400,8 million (EUR360,8 million of which were guaranteed by Hyprop) were refinanced and Hyprop provided new guarantees for EUR360,8 million of the new loans. This resulted in the derecognition of the guarantees given in respect of the expired loans and recognition of the new guarantees as financial liabilities.

H3.3 Key estimates and assumptions
 
Valuation of financial guarantees

The guarantees issued by Hyprop are recognised as financial liabilities on the statement of financial position at the higher of the day one fair value or ECL value.

The valuation of the financial guarantees have been calculated by independent advisers as follows:

Contractual future cash flows related to each loan were calculated and then multiplied by an appropriate probability of default (PD) and loss given default (LGD). The amounts were then discounted (using risk-free rates) to either the inception date of the exposure or the valuation date (30 June 2019) to obtain the day-one fair value or expected credit loss (ECL) at 30 June 2019.

For the ECL calculations, these can be calculated for either a 12-month period (stage 1) or lifetime (stage 2). Depending on the stage or exposure, the relevant ECL value was chosen and compared to the day-one fair value. The credit rating of the underlying entities were assumed as one notch lower than Hyprop’s credit rating.

In previous years credit default swaps were used to assess the probability of default on the underlying loans. Following implementation of IFRS 9: Financial instruments, more information on historical default rates is available in the market. This has been used to calculate the fair values of the new guarantees issued during the year.

Disclosure of the sensitivity of the valuation of the financial guarantees to changes in the underlying assumptions is included in note L4.2.

    GROUP     COMPANY  
    30 June 2019 
R000 
30 June 2018 
R000 
    30 June 2019 
R000 
30 June 2018 
R000 
 
H3.4 Net carrying value              
  Guarantees in respect of Hyprop Mauritius    –    –          186 023    202 822    
   Guarantees in respect of Hystead  110 401  185 686        110 401  185 686    
   Total financial guarantees  110 401  185 686        296 424  388 508    
H3.5  Movement reconciliation*                       
   Opening balance at 1 July    185 686    163 855          388 508    329 575    
   New guarantees issued  110 401  33 815        110 401  136 202    
   Fair value adjustments  –  –        16 294  –    
   Derecognition of guarantees cancelled  (185 686) (11 984)       (218 779) (77 269)   
   Balance at the end of the year  110 401  185 686        296 424  388 508    
  * New guarantees which were issued and expired (due to amendments to loan agreements) in the current year are not included in the above reconciliation.
H4 COVENANTS AND CAPITAL MANAGEMENT
H4.1 External restrictions
 

In terms of the agreements between the group and the financial institutions who have granted loans to the group, the group is required to maintain certain key financial ratios (covenants) above or below specified benchmarks. If a covenant is breached on or before the reporting date, the affected loans should be classified as current if the group does not have the right to defer settlement for at least 12 months after the reporting date.

Summary of the group’s key covenants and their status

Covenant Benchmark range Reported as 30 June 2019 Status 30 June 2018 Status  
Loan to value ratio A maximum of 50% to 60% Percentage 18,0 to 40 17,0 to 40  
Secured loan to value ratio A maximum of 55% to 70% Percentage 12,5 to 49 12,7 to 63  
Net asset value A minimum of R7,5 billion Rbn 22,9 26,0  
Interest cover ratio (EBITDA/interest expense) A minimum of 1,75 to 2 times cover Times 3,6 to 6,3 4,4 to 5,6  
Secured portfolio interest cover ratio A minimum of 1,75 to 2 times cover Times 3,1 to 5,9 3,8 to 6,0  

The group complied with all of its loan covenants during the current and preceding financial years.

H4.2 Internal restrictions
 

Hyprop’s capital management objective is to maintain a strong capital base to provide sustainable returns to shareholders over the long term. The company’s borrowings are limited by its Memorandum of Incorporation and the JSE Listings Requirements to 60% (2018: 60%) of the gross asset value (as defined in the JSE Listings Requirements) as reflected in the company’s consolidated statement of financial position.

Hyprop’s (theoretical) unutilised borrowing capacity can be summarised as follows:

    GROUP     COMPANY  
  Note 30 June 2019 
R000
30 June 2018 
R000
    30 June 2019
R000
30 June 2018
R000
 
Total consolidated assets/gross asset value   33 653 572 35 165 476     30 857 940 30 838 229  
60% of gross asset value   20 192 143 21 099 286     18 514 764 18 502 938  
Total borrowings H1.4 (7 328 801) (7 884 994)     (5 418 909) (3 710 403)  
Unutilised borrowing capacity   12 863 342 13 214 292     13 095 855 14 792 534