M. FINANCIAL INSTRUMENTS
M1 RISK MANAGEMENT OVERVIEW
 

The group has exposure to the following risks arising from financial instruments:

  • Liquidity risk
  • Interest rate risk
  • Currency risk
  • Credit risk

The board of directors (board) has overall responsibility for the establishment and oversight of the group’s risk management framework. The board, assisted by the audit and risk committee, monitors the effectiveness of the internal control systems.

The audit and risk committee has an independent role, operating as an overseer and making recommendations to the board for its consideration and final approval. The audit and risk committee does not assume the functions of management, which remain the responsibility of the executive directors, officers and other members of senior management. The role of the audit and risk committee includes ensuring that an appropriate risk management policy, aligned with industry practice, is adopted and implemented. For further detail on the role and mandate of the audit and risk committee, please refer to its charter on the group’s website and the report of the audit and risk committee attached to the financial statements.

The audit and risk committee is assisted by management and an outsourced internal audit service provider, both of which reports to the audit and risk committee. The committee reports on the findings of the internal audit function to the board.

Executive management implement controls to safeguard the group’s assets, as well as to ensure validity, accuracy and completeness of financial information. Certain of these controls are reviewed by internal audit.

M2 LIQUIDITY RISK AND SENSITIVITY
M2.1

Risk and mitigation

Liquidity risk is the risk that the group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset and includes liquidity risk, financing/refinancing risk and credit rating risk.

The group’s approach to managing liquidity is to ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities when they are due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the group’s reputation.

Exposure   Mitigation
Liquidity – the risk that the group will not be able to meet its financial obligations as they fall due.  

Liquidity risk is managed by:

  • actively monitoring cash flow requirements and debt maturity profiles;
  • maintaining cash balances and adequate loan facilities to ensure future
    obligations can be met.
Financing risk – the risk that the group is unable to raise the required finance to meet its obligations or to refinance existing borrowings, including that the cost of borrowings becomes unaffordable  

Financing and refinancing risk is managed by:

  • actively monitoring cash flow requirements and debt maturity profiles;
  • maintaining cash balances and adequate loan facilities to ensure future obligations can be met;
  • adopting a pro-active approach to refinancing maturing borrowings well in advance of the maturity date;
  • maintaining strong relationships with commercial banks and other lenders;
  • regular engagement with institutional bond investors; and
  • managing debt maturity profiles to ensure a relatively constant level of loan maturities in each year.

Loans are generally raised for between three and five years’ duration.

Credit rating risk – The risk that the group’s credit rating is downgraded and negatively impacts the group’s access to finance or increases its cost of borrowings.

In February 2019, Moody’s lowered Hyprop’s long-term national scale issuer rating to Aa3.za from Aa1.za and affirmed the short-term national scale rating of Prime-1.za. The main reason cited for the decrease in the rating is that Moody’s estimated that Hyprop’s debt-to-asset ratio, adjusted for the full consolidation of Hystead, had increased to 41% at 30 June 2018, from 33,4% in 2017, as a result of debt funded acquisitions in Eastern Europe. Moody’s further stated that Hyprop will rely on external debt financing to cover R5 billion of debt coming due in the next 18 months, including the Hystead debt that it guarantees.

Hyprop, like all South African domiciled entities, is constrained (but not necessarily capped) by the South African sovereign rating.

In March 2019 Moody’s passed the review of South Africa’s sovereign credit rating leaving the rating at Baa3, the last rung of investment grade, with a stable outlook while the S&P rating remains at the sub-investment grade BB with a stable outlook.

 

Hyprop has taken cognisance of Moody’s points which led to two key initiatives that we have advanced:

  • Refinance the portion of debt maturing up to June 2020 – between March and June 2019 R4 billion of external debt (including EUR214 million of debt in Hystead) was refinanced. In addition, R500 million was raised by the issue of two new corporate bonds in March 2019, the proceeds of which were used to settle R358 million of bonds that matured in July 2019, with the balance being retained to finance capital expenditure in the 2020 financial year.
  • Lowering our LTV to 35% (as considered appropriate and calculated by Moody’s) – alternative ways to reduce the group’s LTV ratio continue to be considered and evaluated. In the short term, the disposal of Hyprop’s sub-Saharan African interests and utilisation of the proceeds to settle USD-denominated debt will result in a reduction in the LTV ratio of approximately 5% (on completion of all disposals).

We will endeavour to restore Hyprop’s credit rating to investment grade by 31 December 2020 and will continue to engage with Moody’s in that regard.

The group meets its financing requirements through a mixture of cash generated from its operations and, short and long-term borrowings. Adequate banking facilities and reserve borrowing capacities are maintained.

The group has complied with all of the covenants in terms of the agreements governing its bank borrowings and debt capital market program at 30 June 2019.

    GROUP   COMPANY  
    30 June 2019 30 June 2018   30 June 2019 30 June 2018  
Average maturity of borrowings Years 2,6 2,5   2,6 2,8  
Weighted average maturity of borrowings Years 2,3 2,3   2,8 2,7  
M2.2

Financial exposure

The following table summarises the maturity profiles and contractual cash flows of financial instruments at the reporting date. The amounts are gross and undiscounted, and include contractual interest payments where applicable. The table below excludes assets held-for-sale.

GROUP
30 June 2019
Carrying
value
R000
Contractual  
cash flows(2)
R000  
Within 
one year 
R000 
One to 
five years 
R000 
More than 
five years 
R000 
 
Non-derivative financial assets            
Financial asset 218 444 3 220 944   230 232  1 207 965  1 782 747   
Loans receivable – non-current (Eastern Europe) 18 847 19 935   594  19 341  –   
Loans receivable – current (sub-Saharan Africa) 1 333 106 1 333 106   1 333 106  –  –   
Trade and other receivables 105 625 105 625   105 625  –  –   
Cash and cash equivalents 1 285 337 1 285 337   1 285 337  –  –   
Total 2 961 359 5 964 947   2 954 894  1 227 306  1 782 747   
Derivative financial assets            
Currency collars – non-current 619 34 389   –  34 389  –   
Currency collars – current 2 691 140 401   140 401  –   –   
Total 3 310 174 790   140 401   34 389  –   
Non-derivative financial liabilities            
Long-term portion of borrowings 6 320 801 8 474 266   505 836  7 597 298  371 132   
Short-term portion of borrowings 1 008 000 1 027 815   1 027 815  –  –   
Financial guarantees – non-current(1) 110 401 4 160 535   –  4 160 535  –   
Trade and other payables 469 141 469 141   469 141  –  –   
Total 7 908 343 14 131 757   2 002 792  11 757 833  371 132   
Derivative financial liabilities(2)            
Interest rate swaps – non-current 60 224 47 625   17 603  –  –   
Interest rate swaps – current 7 339 4 750   4 750  –  –   
Total 67 563 52 375   22 353  30 022  –   
Net exposure (8 044 395)  1 070 150  (10 526 160) 1 411 615   
30 June 2018
Non-derivative financial assets
           
Financial asset 152 556 2 120 835   266 527  855 433  998 874   
Loans receivable – non-current (sub-Saharan Africa) 2 918 721 3 336 060   206 626  3 129 434   –   
Loans receivable – non-current (Eastern Europe) 18 724 20 390   590  590  19 211   
Loans receivable – current 40 716 40 716   40 716  –  –   
Trade and other receivables 258 071 258 071   258 071  –  –   
Cash and cash equivalents 715 493 715 493   715 493  –  –   
Total 4 104 281 6 491 565   1 488 023  3 985 457  1 018 085   
Derivative financial assets            
Derivative instruments – non-current 6 846 27 543   10 086  16 522  934   
Derivative instruments – current 815 2 440   2 440  –  –   
Total 7 661 29 983   12 526  16 522  934   
Non-derivative financial liabilities            
Long-term portion of borrowings 7 815 651 7 256 694   465 524  6 420 349  370 821   
Short-term portion of borrowings 69 343 69 343   69 343  –  –   
Financial guarantees – non-current(1) 185 686 6 462 459   3 786 293  2 676 166  –   
Trade and other payables 486 090 486 090   486 090  –  –   
Total 8 556 770 14 274 586   4 807 250  9 096 515  370 821   
Derivative financial liabilities(2)            
Derivative instruments – non-current 24 060 12 843   28 435  41 330  930   
Derivative instruments – current 1 999 135   135  –  –   
Total 26 059 12 978   28 570  41 330  930   
Net exposure   (7 766 016) (3 335 271) (5 135 866) 647 268   
(1) The outflows disclosed for the financial guarantees in the table represent maximum potential outflow under the guarantees in the event of the borrowers defaulting on all their obligations under the guaranteed loans.
(2) The inflows/(outflows) disclosed in the above table represent the contractual undiscounted cash flows relating to derivative financial liabilities held for risk management purposes. These derivative financial instruments are not usually closed out before contractual maturity. The disclosure shows net cash flow amounts for derivatives as they are settled on a net basis.
COMPANY
30 June 2019
Carrying
value
R000
Contractual  
cash flows(1)
R000  
Within 
one year 
R000 
One to 
five years 
R000 
More than 
five years 
R000 
 
Non-derivative financial assets            
Financial asset 218 444 3 220 944   230 232  1 207 965  1 782 747   
Loans receivable – non-current (sub-Saharan Africa) 758 264 758 264   –  758 264  –   
Loans receivable – non-current (Eastern Europe) 18 847 19 935   594  19 341  –   
Loans receivable – non-current (South Africa) 53 603 53 603   –  53 603  –   
Trade and other receivables 104 534 104 534   104 534  –  –   
Cash and cash equivalents 1 062 412 1 062 412   1 062 412  –  –   
Total 2 216 104 5 219 692   1 397 772  2 039 173  1 782 747   
Derivative financial assets            
Currency collars – non-current 619 34 389   –   34 389  –   
Currency collars – current 2 691 140 401   140 401  –  –   
Total 3 310 174 790   140 401  34 389  –   
Non-derivative financial liabilities            
Long-term portion of borrowings 4 410 909 4 768 365   317 939  4 079 293  371 132   
Short-term portion of borrowings 1 008 000 1 027 815   1 027 815  –  –   
Financial guarantees – non-current(1) 296 424 6 650 356   3 786 293  2 864 063  –   
Trade and other payables 447 691 447 691   447 691  –  –   
Total 6 163 024 12 894 227   5 579 738  6 943 356  371 132   
Derivative financial liabilities(2)            
Interest rate swaps – non-current 59 408 47 625   17 603  30 022  –   
Interest rate swaps – current 7 326 4 750   4 750  –  –   
Total 66 734 52 375   22 353  30 022  –   
Net exposure (7 552 120)  (4 063 918) (4 899 816) 1 411 615   
30 June 2018
Non-derivative financial assets
           
Financial asset 152 556 2 120 835   266 527  855 433  998 874   
Loans receivable – non-current (sub-Saharan Africa) 758 264 758 264   –  758 264  –   
Loans receivable – non-current (Eastern Europe) 18 723 20 390   590  590  19 211   
Loans receivable – current 84 160 84 160   84 160  –  –   
Trade and other receivables 187 490 187 490   187 490  –  –   
Cash and cash equivalents 655 789 655 789   655 789  –  –   
Total 1 856 982 3 826 928   1 194 556  1 614 287  1 018 085   
Non-derivative financial liabilities            
Long-term portion of borrowings 2 949 278 3 689 627   247 182  3 071 624  370 821   
Short-term portion of borrowings 761 125 910 108   910 108  –  –   
Financial guarantees – non-current 388 508 9 353 397   3 960 060  5 393 337  –   
Trade and other payables 346 916 346 916   346 916  –  –   
Total 4 445 827 14 300 048   5 464 266  8 464 961  370 821   
Derivative financial liabilities(2)            
Derivative instruments – non-current 24 060 74 515   27 521  45 130  1 864   
Derivative instruments – current 1 999 1 999   1 999  –  –   
Total 26 059 76 514   29 520  45 130  1 864   
Net exposure (10 549 634)  (4 299 230) (6 895 804) 645 400   
(1) The outflows disclosed for the financial guarantees in the table represent maximum potential outflow under the guarantees in the event of the borrowers defaulting on all their obligations under the guaranteed loans.
(2) The inflows/(outflows) disclosed in the above table represent the contractual undiscounted cash flows relating to derivative financial liabilities held for risk management purposes. These derivative financial instruments are not usually closed out before contractual maturity. The disclosure shows net cash flow amounts for derivatives as they are settled on a net basis.
M3 INTEREST RATE RISK AND SENSITIVITY
M3.1

Risk and mitigation

Interest rate risk is the risk that the value of short-term investments and financial performance will be impacted as a result of fluctuations in interest rates.

Exposure   Mitigation
Fluctuations in interest rates impact on the value of short-term investments, financing activities and the cost of borrowings, giving rise to interest rate risk.   Interest rates are monitored and appropriate steps taken to ensure that Hyprop’s exposure to interest rate fluctuations is limited.
The group has significant exposure to interest rate risk through its loans receivable and borrowings.  

The group has a formal interest rate hedging policy for borrowings which was approved by the audit and risk committee and the board during the year. In terms of this policy at least 75% of interest rate exposure for borrowings is fixed over the life of interest-bearing borrowings.

The board has approved the use of interest rate swaps, forward starting interest rate swaps, fixed rate loans, interest rate collars and interest rate caps to manage interest rate exposure. Details of interest rate hedges at 30 June 2019 are included in note H2 to the financial statements.

M3.2

Financial exposure

The interest rate profile of the group’s interest-bearing borrowings as reported is as follows:

  GROUP   COMPANY  
  30 June 2019 R000 30 June 2018
R000
  30 June 2019 R000 30 June 2018
R000
 
Long-term portion of borrowings 6 320 801 7 815 651   4 410 909 2 949 278  
Short-term portion of borrowings 1 008 000 69 343   1 008 000 761 125  
Total 7 328 801 7 884 994   5 418 909 3 710 403  

Summarised quantitative data on the group’s interest rate exposure is set out in the statistics below:

  GROUP  
  30 June 2019 30 June 2018  
On-balance sheet debt at fixed rates (%) (excludes EUR funding) 77,0 81,2  
   South African debt 101,1 113,6  
   USD debt (Rand equivalent) 44,6 61,0  
Average maturity of interest rate hedges (years) 2,25 2,32  
   South African debt 2,58 2,74  
   USD debt (Rand equivalent) 1,24 1,15  
Average duration of borrowings (years) 2,21 2,43  
   South African debt 2,84 3,15  
   USD debt (Rand equivalent) 1,35 1,98  
Cost of funding (%) (including hedges) 7,7 6,7  
   South African debt 9,3 9,4  
   USD debt 5,4 5,0  
Cost of funding (%) (excluding hedges) 7,3 6,5  
   South African debt 8,7 8,6  
   USD debt 5,5 5,1  
Debt capital market (DCM) % of total debt 22 20  
Interest cover ratio      
Interest cover ratio (gross) 4,12 4,36  
Interest cover ratio (net) 5,18 8,08  
Borrowings covenants      
LTV (banks/DCM) 50 – 70/55 50 – 70/55  
Interest cover (banks) 1,75 – 2,0 1,75 – 2,0  
M3.3

Sensitivity

Based on the interest rate profile (fixed or variable) of the group’s borrowings and interest rate swaps at 30 June 2019, an interest rate increase/decrease of 150 basis points, while all other variables are held constant, would decrease/increase the group’s profit for the year ended 30 June 2019 by R28,6 million (2018: R18,7 million).

M4 CURRENCY RISK AND SENSITIVITY
M4.1

Risk and mitigation

Exposure   Mitigation

The group is exposed to currency risk in three areas:

(i)

Transactional versus functional currency exposure

The mismatch between the currencies in which revenue, operating costs and borrowings are denominated and the respective functional currencies of group companies.

Where we are exposed

Hyprop is exposed to this risk at all levels where it transacts in currencies other than the functional currency, e.g. Euro and USD denominated loans guaranteed by Hyprop (whose functional currency is ZAR), Nigerian Naira denominated expenses and bank accounts in Nigeria (where functional currency is USD) and Euro denominated bank loans across the European portfolio.

  The group’s policy is to match the currency in which borrowings are incurred to the currency in which income is earned. This reduces the impact of currency fluctuations on debt service obligations, and thereby reduces the risk of guarantees being called. This is particularly relevant to the group’s funding structures in its sub-Saharan African investments and European investments where borrowings have been guaranteed by Hyprop.
(ii)

Functional versus reporting currency

The difference that gives rise to a currency translation reserve in the consolidated financial statements (for example, a subsidiary has a US Dollar functional currency and Hyprop Group reporting currency is ZAR (Rand), or foreign exchange gains or losses on balances denominated in foreign currency).

Where we are exposed

Hyprop is exposed to this risk through its wholly owned subsidiary Hyprop Mauritius whose functional currency is USD. Although the European properties in the Hystead Group present the same exposure (reporting in Euro, while functioning in Dinar, Kuna, Denar and Lev), the investment in Hystead accounted for as a financial asset and is not consolidated by Hyprop.

 

Insofar as this risk relates to Hyprop Mauritius, the risk is unmitigated as there are no cash flows which can be hedged. To the extent cash flows do arise, these will be hedged under (iii) below.

Hyprop’s investment in Hystead is accounted for as a financial asset and is not consolidated by Hyprop. Therefore this risk is not applicable to the investment in Hystead.

(iii)

Settlement versus functional currency

The mismatch between the currency in which transactions (for example, dividends and interest) are settled (send-side), and the currency in which they are received.)

Where we are exposed

Hyprop is exposed to this risk through the payments it makes and receives (including dividend income) in Euro and USD.

 

The group has a formal foreign currency hedging policy which was approved by the audit and risk committee and the board during the year. In terms of this policy between 50% and 75% of known, or reliably predictable, cash flow items can be hedged up to 12 months in advance using foreign exchange collars or forward exchange contracts.

Refer to note H2 of the financial statements for details of the foreign exchange collars in place at 30 June 2019.

The following significant exchange rates were applied during the year:

  AVERAGE RATE   YEAR END SPOT RATE  
  30 June 2019 30 June 2018   30 June 2019 30 June 2018  
Rand/Euro 16,04 15,32   16,11 16,00  
Rand/US Dollar 14,13 12,85   14,15 13,70  
Naira/US Dollar 362,11 338,02   361,93 360,99  
M4.2

Financial exposure

Summarised quantitative data about the group’s exposure to currency risk is as follows:

GROUP
30 June 2019
 
Carrying 
value 
EUR000 
Carrying 
value 
USD000 
Carrying 
value 
NGN000 
Carrying 
value 
R000 
  
Financial asset  13 561  –  –  218 444    
Loans receivable – non-current (Eastern Europe) 1 170  –  –  18 847    
Loans receivable – current  –  94 221  –  1 333 106    
Trade and other receivables  1 011  77  2 062 028  97 971    
Cash and cash equivalents (including held-for-sale) –  15 319  1 061 880  258 254    
Asset exposure  15 742  109 617  3 123 908  1 926 622    
Long-term portion of borrowings  –  263 457  –  3 727 579    
Short-term portion of borrowings  –  813  –  11 499    
Financial guarantees – non-current  6 854  –  –  110 401    
Trade and other payables  –  1 513  1 067 648  63 150    
Non-derivative liabilities exposure  6 854  265 783  1 067 648  3 912 629    
Derivative financial liabilities  205  (59) –  2 480    
Net exposure  8 683  (156 107) 2 056 260  (1 988 487)   
30 June 2018                
Financial asset  9 534  –  –  152 556    
Loans receivable – non-current (sub-Saharan Africa) –  213 045  –  2 918 717    
Loans receivable – non-current (Eastern Europe) 1 170  –  –  18 724    
Loans receivable – current  2 545  –  –  40 716    
Trade and other receivables  8 435  –  1 835 309  204 624    
Cash and cash equivalents (including held-for-sale) –  370  1 129 033  47 923    
Asset exposure  21 684  213 415  2 964 342  3 383 260    
Long-term portion of borrowings  –  343 261  –  4 702 674    
Short-term portion of borrowings  –  17 010  –  233 041    
Financial guarantees – non-current  11 604  –  –  185 686    
Trade and other payables  –  478  1 170 399  50 968    
Non-derivative liabilities exposure  11 604  360 749  1 170 399  5 172 369    
Derivative financial liabilities  (108) 543  –  5 715    
Net exposure  10 188  (147 877) 1 793 943  (1 794 824)   
COMPANY
30 June 2019
Carrying 
value 
EUR000 
Carrying 
value 
R000 
 
Financial asset  13 561  218 444    
Loans receivable – non-current (Eastern Europe) 1 170  18 847    
Trade and other receivables  1 011  16 278    
Asset exposure  15 742  253 569    
Financial guarantees – non-current  6 854  110 401    
Non-derivative liabilities exposure  6 854  110 401    
Derivative financial liabilities  205  3 310    
Net exposure  8 683  139 858    
COMPANY           
30 June 2018          
Financial asset  9 534  152 556    
Loans receivable – non-current (Eastern Europe) 1 170  18 723    
Trade and other receivables  4 780  76 484    
Asset exposure  15 484  247 763    
Financial guarantees – non-current  11 604  185 686    
Non-derivative liabilities exposure  11 604  185 686    
Derivative financial liabilities  (108) (1 722)   
Net exposure  3 988  63 799    
M4.3

Sensitivity

The following sensitivity analysis is provided to show the foreign currency exposure of the individual entities at the end of the reporting period. This analysis is prepared based on the statement of financial position balances at year end, for which there is currency risk, before consideration of currency derivatives.

The effect on equity is calculated as the effect on profit or loss. The effect on translation of results into the group’s presentation currency is excluded from the information provided.

The pre-tax effect of changes to one of the exchange rates is summarised below. The analysis assumes that all other variables, in particular, interest rates, remain constant.

          GROUP     COMPANY  
    30 June 2019
% change
30 June 2018
% change
  30 June 2019  R000  30 June 2018 
R000 
    30 June 2019  R000  30 June 2018 
R000 
 
Impact on profit or loss                      
Rand/Euro Strengthening 0,25 1,27   685  78 574      685  78 574   
Rand/US Dollar Strengthening 0,25 0,72   –  6 838      N/A  N/A   
Naira/US Dollar Strengthening 0,25   N/A  N/A      N/A  N/A   
Rand/Euro Weakening 0,25 1,27   (685) (78 574)     (685) (78 574)  
Rand/US Dollar Weakening 0,25 0,72   –  (6 838)     N/A  N/A   
Naira/US Dollar Weakening 0,25   N/A  N/A      N/A  N/A   
Impact on other comprehensive income                      
Rand/US Dollar Strengthening 0,25 0,72   (85) (1 537)     N/A  N/A   
Naira/US Dollar Strengthening 0,25    5 141  N/A      N/A  N/A   
Rand/US Dollar Weakening 0,25 0,72   85  1 537      N/A  N/A   
Naira/US Dollar Weakening 0,25   (5 141) N/A     N/A  N/A   
M5 CREDIT RISK AND SENSITIVITY
M5.1

Risk and mitigation

Credit risk is the risk of financial loss due to counterparties not meeting their contractual obligations when due.

The group is exposed to credit risk due to its trade receivables, cash and cash equivalents, loans receivable and derivative instruments.

Exposure   Mitigation

Receivables

The group is exposed to credit risk due to trade receivables. The maximum exposure to credit risk in respect of trade receivables at the reporting date is the fair value of each class of receivable.

 

Deposits and guarantees

Save for national tenants, a deposit in the form of cash or a bank guarantee is obtained from tenants in terms of Hyprop’s deposit policy. Furthermore, and only if required, a deed of suretyship will be obtained from a tenant.

Loans receivable

The group is exposed to credit risk due to its loans receivable. The maximum exposure to credit risk in respect of loans receivable at the reporting date is the fair value of each class of loan receivable.

  The credit risk in respect of loans receivable is generally mitigated by agreements with the counterparty. These agreements include claims which provide legal protection for Hyprop, common to such agreements. Loans are generally only advanced to group or related parties.

Cash and cash equivalents

The maximum exposure to credit risk due to cash and cash equivalents is the outstanding balance on deposit with the respective financial institution.

  The group and company manage their exposure to credit risk by placing funds with a range of leading South African banks and AA+ rated money market funds. Exposure levels to each financial institution are monitored regularly.

Derivative instruments

The maximum exposure to credit risk in respect of derivative instruments at the reporting date is the fair value of the derivative instruments.

  The group and company manage their exposure to credit risk by transacting only with leading South African banks.
M5.2

Financial exposure

The group considers its maximum credit risk exposure per asset class, without taking into account any collateral and financial guarantees, to be as follows:

      GROUP     COMPANY  
  Ref   30 June 2019 R000 30 June 2018
R000
    30 June 2019 R000 30 June 2018
R000
 
Loans receivable – non-current M5.2.1   18 847 2 937 445     72 450 18 723  
Loans receivable – current M5.2.2   1 333 106 40 716     84 160  
Trade and other receivables (including held-for-sale) M5.2.3   174 970 245 639     94 359 181 339  
Cash and cash equivalents (including held-for-sale) M5.2.4   1 326 849 715 648     1 062 412 643 032  
Derivative instruments – assets M5.2.5   3 310 7 661     3 310 224  
      2 857 082 3 947 109     1 232 531 927 478  
M5.2.1

Loans receivable – non-current

The loans receivable from Vondelvlag Stichting and Vondelvlag Finance (which expire in 2021) do not exhibit any signs of credit impairment. Interest payments continued to be made on these loans at each scheduled quarterly date and no expectation of default is indicated.

M5.2.2

Loans receivable – current

Although the loans receivable from AttAfrica and Manda Hill were credit impaired at 30 June 2018, interest payments continued to be made on these loans at the beginning of the current year.

During the year, however, the credit quality of the loans deteriorated as a result of the deterioration of the economic environments in which the group’s sub-Saharan African interests operate, losses incurred by AttAfrica, the cessation of payment of the majority of the interest on the loans, decreases in the independent valuations of the underlying investment properties and Hyprop’s decision to dispose of its sub-Saharan African interests. This resulted in the credit quality of the loans declining to stage 3 credit impaired.

    GROUP       COMPANY  
    30 June 2019  R000  30 June 2018 
R000 
      30 June 2019  R000  30 June 2018 
R000 
 
M5.2.3 Trade receivables                
  Maximum exposure 148 175  196 015        67 564  172 406   
     Gross trade and other receivables 174 970  245 639        94 359  181 339   
     Cumulative impairments (26 795) (49 624)       (26 795) (8 933)  
  Mitigating balances 374 581  315 943        345 792  283 710   
     Bank guarantees on behalf of tenants in favour of the group 235 212  229 296        214 004  211 199   
     Tenant deposits held by the group 139 369  86 647        131 788  72 511   
M5.2.3.1

Impairment of trade receivables

The allowance for doubtful debts has been determined on a tenant-by-tenant basis, taking into account the circumstances of each tenant, including factors such as defaults on payment terms, known insolvency and the legal status of the accounts.

The group has applied the simplified approach to determine the expected credit loss for trade receivables resulting in a calculation of lifetime expected credit losses.

Management believes that there are no significant trade receivables that are doubtful that have not been provided for as doubtful debts or written off.

  GROUP     COMPANY  
  30 June 2019  R000  30 June 2018 
R000 
    30 June 2019  R000  30 June 2018 
R000 
 
Movement reconciliation                      
Balance at the beginning of the year  49 624  33 944        8 933  5 558    
Allowance for doubtful debts raised during the year  47 052  31 089        23 712  12 825    
Receivables written off during the year  (5 850) (17 509)       (5 850) (9 450)   
Currency translation adjustment  1 369  2 100        –  –    
Transferred to held-for-sale  (65 400) –        –  –    
Balance at the end of the year  26 795  49 624        26 795  8 933    
Ageing of impaired receivables                      
Current  10 753  2 772        10 753  2 771    
30 days  4 031  1 791        4 031  1 791    
60 days  2 745  1 218        2 745  1 218    
90+ days  9 266  43 843        9 266  3 153    
Total  26 795  49 624        26 795  8 933    
Ageing of receivables past due but not impaired                      
30 days  2 422  11 911        2 422  3 232    
60 days  855  7 409        855  1 084    
90+ days  2 197  27 872        2 197  3 585    
Total  5 474  47 192        5 474  7 901    
M5.2.4

Cash and cash equivalents

Cash and cash equivalents comprise cash deposits with leading South African banks and units held in AA+ rated money market funds.

The Moody’s credit ratings for the counterparty financial institutions as well the exposure concentration of cash and cash equivalents with each financial institution are as follows:

      GROUP     COMPANY  
  Credit rating
2019
Credit rating
2018
30 June 2019
%
30 June 2018
%
    30 June 2019
%
30 June 2018
%
 
Absa Bank Limited Baa3 Baa3 60,6 48,9     73,3 53,3  
Nedbank Baa3 Baa3 18,8 37,3     22,7 40,7  
Standard Bank Group Baa3 Baa3 20,6 13,8     4,0 6,0  
Total exposure     100,0 100,0     100,0 100,0  

Impairment losses on cash and cash equivalents are measured on a 12-month expected credit loss basis. No expected credit losses are anticipated in respect of cash and cash equivalents, given the credit ratings of the counterparties.

M5.2.5

Derivative instruments

Derivative instruments comprise interest rate swaps and foreign currency collars.

The Moody’s credit ratings for the counterparty financial institutions as well the exposure of derivative instruments with each financial institution are as follows:

      GROUP     COMPANY  
  Credit rating
2019
Credit rating
2018
30 June 2019
%
30 June 2018
%
    30 June 2019
%
30 June 2018
%
 
Rand Merchant Bank Baa3 Baa3 5,8 6,7     4,7 6,1  
Nedbank Baa3 Baa3 41,0 56,4     45,3 68,1  
Standard Bank Group Baa3 Baa3 53,2 36,9     50,0 25,8  
Total exposure     100,0 100,0     100,0 100,0  

Exposure is based on the nominal values of the underlying derivative instruments.