M FINANCIAL RISK MANAGEMENT
M1 RISK MANAGEMENT OVERVIEW
 

The Group is exposed to the following risks arising from financial instruments:

  • Liquidity risk                              See note M2: Liquidity risk and sensitivity
  • Interest rate risk                        See note M3: Interest rate risk and sensitivity
  • Currency risk                              See note M4: Currency risk and sensitivity
  • Credit risk                                   See note M5: Credit risk and sensitivity

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 and other risk management procedures.

The Audit and Risk committee (ARC) has an independent role, operating as an overseer and making recommendations to the board for its consideration and final approval. The ARC 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 ARC 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 ARC, 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 ARC is assisted by management and an outsourced internal audit service provider, both of which report to the Audit and Risk committee. The ARC reports on the findings of the internal auditors 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 risk – 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;
  • managing debt maturity profiles to ensure a relatively constant level of loan maturities in each year; and
  • raising loans with terms that are generally 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 April 2020 Moody's Investor Services Inc (Moody's) lowered the Company's credit rating from Ba1 to Ba2. Concurrently, Moody's lowered the long-term national scale issuer rating to A1.za from Aa3.za and affirmed the short-term national scale rating of Prime-1.za.

The main reason cited by Moody's for the reduction in Hyprop's rating is the level of debt maturing in the next 12-18 months, in the context of a challenging operating environment, including the temporary closure of shopping centres as a result of the lockdown aimed at reducing the spread of the coronavirus, and dislocated credit markets.

Following their credit rating action in April 2020 Moody's completed a 3-month review of Hyprop's credit rating in June 2020 and confirmed Hyprop's credit rating assigned in April 2020. The rating outlook was changed to "negative" from "under review for downgrade".

Moody's has withdrawn its rating of Hyprop as Hyprop has elected not to renew Moody's appointment given the significant levels of uncertainty in the local and global economies due to the impact of Covid-19, as well as the downgrade of South Africa's sovereign credit rating in March 2020.

In terms of Hyprop's DMTN Program, Hyprop is not required to be rated by an independent rating agency. The Company will reconsider the appointment of a rating agency when local and global markets normalise.

   

In their 2020 rating reviews Moody's recognised that over the last twelve months Hyprop was able to refinance its debt, demonstrating good access to banking markets, and the progress made by Hyprop since April 2020 in refinancing the US Dollar and Rand denominated debt maturing over remainder of the 2020 calendar year, the additional R500 million of bank facilities that were raised, the R100 million raised through the DMTN Program and the progress being made to dispose of the Group's sub-Saharan Africa investments.

The majority of debt coming due in the next 12 months comprises $172 million of debt relating to Hyprop's assets in sub-Saharan Africa (Hyprop Mauritius and Ikeja City Mall in Nigeria) and EUR49 million of non-recourse (to Hyprop) in-country asset backed finance relating to Hystead Limited, which is due in March 2021.

Subsequent to 30 June 2020, $99 million of the US Dollar denominated debt was settled. The remaining $73 million will be settled on disposal of the Group's Sub-Saharan Africa interests, or refinanced in either Rands
or Dollars.

The Group meets its financing requirements through a mixture of cash generated from its operations and short and long-term borrowings. The Group has actively increased its use of revolving credit facilities to allow greater flexibility in managing cashflow and liquidity.

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 2020.

Reported as Group Company
June 2020   June 2019 June 2020 June 2019
Average maturity of borrowings years 1.79   2.6 2.56 2.6
Weighted average maturity of borrowings years 1.77   2.3 2.47 2.8

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
June 2020
 
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 assets  532 972    3 746 664    217 257    1 410 877    2 118 530 
Loans receivable – current (Eastern Europe) 22 759    23 350    23 350    –    – 
Loans receivable – current (sub-Saharan Africa) 658 456    658 456    658 456    –    – 
Trade and other receivables  154 548    154 548    154 548    –    – 
Cash and cash equivalents  834 877    834 877    834 877    –    – 
Total  2 203 612    5 417 895    1 888 488    1 410 877    2 118 530 
Non-derivative financial liabilities 
Long-term portion of borrowings  4 074 183    4 649 883    207 145    4 442 738    – 
Short-term portion of borrowings  2 463 877    2 842 146    2 842 146    –    – 
Financial guarantees – non-current (1)  127 066    8 148 517    158 852    7 989 665    – 
Trade and other payables  494 710    494 710    –    –    – 
Total  7 159 835    16 135 256    3 208 143    12 432 403    – 
Derivative financial liabilities (2) 
Currency collars – non-current  3 693    34 389    –    34 389    – 
Currency collars – current  28 326    140 401    140 401    –    – 
Interest rate swaps – non-current  229 976    255 591    100 380    155 211    – 
Interest rate swaps – current  23 654    16 690    16 690    –    – 
Total  285 649    447 071    257 471    189 600    – 
Net (liability)/asset exposure  (5 241 873)   (11 164 432)   (1 577 126)   (11 211 126)   2 118 530 
 
June 2019 
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    30 022    – 
Interest rate swaps – current  7 339    4 750    4 750    –    – 
Total  67 563    52 375    22 353    30 022    – 
Net (liability)/asset exposure  (5 011 237)   (8 044 395)   1 070 150    (10 526 160)   1 411 615 

(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
June 2020
  
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  532 972    3 746 664    217 257    1 410 877    2 118 530 
Loans receivable – current (Eastern Europe) 22 759    23 350    23 350    –    – 
Loans receivable – current (South Africa) 29 108    29 108    –    29 108    – 
Trade and other receivables  154 016    154 016    154 016    –    – 
Cash and cash equivalents  726 362    726 362    726 362    –    – 
Total  1 465 217     4 679 500     1 120 985     1 439 985     2 118 530  
Non-derivative financial liabilities 
Long-term portion of borrowings  4 835 307    4 649 884    207 145    4 442 738    – 
Short-term portion of borrowings  425 000    425 730    425 730    –    – 
Financial guarantees – non-current (1)  127 066    8 148 517    158 852    7 989 665    – 
Financial guarantees – current (1)  114 861    3 059 136    3 059 136    –    – 
Trade and other payables  479 305    479 305    –    –    – 
Total  5 981 539     16 762 572     3 850 863     12 432 403      
Derivative financial liabilities (2) 
Currency collars – non-current  3 693    34 389    –    34 389    – 
Currency collars – current  28 326    140 401    140 401    –    – 
Interest rate swaps – non-current  229 976    255 591    100 380    155 211    – 
Interest rate swaps – current  19 864    15 047    15 047    –    – 
Total  281 859     445 428     255 828     189 600      
Net (liability)/asset exposure  (4 798 181)   (12 528 500)   (2 985 706)   (11 182 018)   2 118 530  
 
June 2019 
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) 758 264    758 264    –    758 264    – 
Loans receivable – 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 (liability)/asset exposure  (4 010 344)   (7 552 120)   (4 063 918)   (4 899 816)   1 411 615 

(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 NTEREST 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 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. 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 2020 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
  June 2020
R’000
  June 2019
R’000
June 2020
R’000
June 2019
R’000
Long-term portion of borrowings 4 074 183   6 320 801   4 835 307   4 410 909
Short-term portion of borrowings 2 463 877   1 008 000   425 000   1 008 000
Total 6 538 060   7 328 801   5 260 307   5 418 909

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

Group
 June 2020    June 2019  
On-balance sheet debt at fixed rates (%) (excludes EUR funding) 65.6%   77.00%  
     ZAR debt 84.6%   101.10%  
    USD debt (Rand equivalent) 36.9%   44.60%  
Average maturity of interest rate hedges (years) 1.66   2.25  
    ZAR debt 2.07   2.58  
    USD debt (Rand equivalent) 0.24   1.24  
Average duration of borrowings (years) 1.77   2.21  
    ZAR debt 2.47   2.84  
    USD debt (Rand equivalent) 0.43   1.35  
Cost of funding (%) (including hedges) 7.3%   7.70%  
    ZAR debt 9.0%   9.30%  
    USD debt (Rand equivalent) 4.7%   5.40%  
Cost of funding (%) (excluding hedges) 5.1%   7.30%  
    ZAR debt 5.6%   8.70%  
    USD debt (Rand equivalent) 4.4%   5.50%  
Debt capital market (DCM) % of total debt 23%   22%  
Interest cover ratio
Interest cover ratio (gross) 3.03   4.12  
Interest cover ratio (net) 3.44   5.18  
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 2020, 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 2020 by R37.2 million (2019: R28.6 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 the Group's 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 subsidiaries Hyprop Ikeja and Gruppo 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.

At 30 June 2020 the functional currency of Hyprop Mauritius was Rands (2019: US Dollars). The change in functional currency resulted from the need to reorganise the capital structure of Hyprop Mauritius, including replacing existing US Dollar denominated bank loans with equity finance from Hyprop, and the progress made towards disposing of Hyprop's interests in sub-Saharan Africa.

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 prior 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 2020.


The following significant exchange rates were applied during the year:

Average rate Year end spot rate
June 2020 June 2019 June 2020 June 2019
R R R R
Rand/Euro 17.32 16.04 19.45 16.11
Rand/US Dollar 15.58 14.13 17.33 14.15
Naira/US Dollar 368.85 362.11 387.48 361.93


M4.2 Financial exposure
 

Summarised quantitative data about the Group's exposure to currency risk:

Group
June 2020
 
Carrying value  EUR'000     Carrying value  USD'000     Carrying value  NGN'000     Carrying value  R'000 
Financial asset  27 406     –     –     532 972 
Loans receivable – current (Eastern Europe) 1 190     –     –     22 759 
Loans receivable – current  –     37 992     –     658 456 
Trade and other receivables  634     30     30 262 484     90 946 
Cash and cash equivalents (including held-for-sale) –     6 576     13 739 192     143 213 
Asset exposure  29 230     44 598     44 001 676     1 448 346 
Long-term portion of borrowings  –     –     –     – 
Short-term portion of borrowings*  –     193 360     –     3 351 163 
Financial guarantees – non-current  6 534     –     –     127 066 
Trade and other payables  –     402     18 184 205     53 890 
Non-derivative liabilities exposure  6 534     193 762     18 184 205     3 532 119 
Derivative financial liabilities  1 251     444          32 019 
Net exposure  21 445     (149 608)    25 817 471     (2 115 792)
 
June 2019 
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)

* Subsequent to 30 June 2020, USD 98m of loans guaranteed by Hyprop were settled.

Group
June 2020
 
Carrying value 
USD'000
 
   Carrying value 
EUR'000
 
   Carrying value 
R'000
 
Financial asset  –     27 406     532 972 
Loans receivable – current (Eastern Europe) –     1 190     22 759 
Trade and other receivables  –     634     12 323 
Asset exposure  –     29 230     568 054 
Financial guarantees – non-current  –     6 534     127 066 
Financial guarantees – current  6 627     –     114 861 
Non-derivative liabilities exposure  6 627     6 534     241 927 
Derivative financial liabilities  444     1 251     32 019 
Net exposure  (7 071)    21 445     294 108 
 
June 2019 
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 
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 
June 2020 
% change (1)
 
June 2019 
% change
 
   June 2020
R'000
 
June 2019
R'000
 
June 2020
R'000
 
June 2019
R'000
 
Impact on profit or loss 
Rand/Euro  Strengthening  1.00  0.25    (4 170) 685  (214) 685 
Rand/US Dollar  Strengthening  1.00  0.25    n/a  –  1 226  n/a 
Naira/US Dollar  Strengthening  1.00  0.25    n/a  n/a  n/a  n/a 
Rand/Euro  Weakening  1.00  0.25    4 170  (685) 214  (685)
Rand/US Dollar  Weakening  1.00  0.25    n/a  –  (1 226) n/a 
Naira/US Dollar  Weakening  1.00  0.25    n/a  n/a  n/a  n/a 
Impact on other comprehensive income 
Rand/US Dollar  Strengthening  1.00  0.25    25 929  (85) n/a  n/a 
Naira/US Dollar  Strengthening  1.00  0.25    (11 433) 5 141  n/a  n/a 
Rand/US Dollar  Weakening  1.00  0.25    (25 929) 85  n/a  n/a 
Naira/US Dollar  Weakening  1.00  0.25    11 433  (5 141) n/a  n/a 

(1) Due to current market condition, the sensitivity % was changed from 0.25% to 1%

M5 CURRENCY 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

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 may be obtained on behalf of a tenant.

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 terms 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 in respect of 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
Note June 2020
R'000
June 2019
R'000
June 2020
R'000
June 2019
R'000
Loans receivable – current (Vondelvlag) M5.2.1 22 759 18 847 22 759 72 450
Loans receivable – current M5.2.2 658 456 1 333 106
Trade and other receivables (including held-for-sale) M5.2.3 313 933 174 970 211 242 94 359
Cash and cash equivalents (including held-for-sale) M5.2.4 876 544 1 326 849 726 362 1 062 412
Derivative instruments – assets M5.2.5 3 310 3 310
1 871 691 2 857 082 960 363 1 232 531
   
M5.2.1 Loans receivable – current (Vondelvlag)
  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
 

The loan receivable from AttAfrica was credit impaired at 30 June 2019 and 2020. Interest income on the loan is only recognised to the extent actually received.

The credit quality of the loan has been assessed as stage 3 credit impaired 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. During the year ended 30 June 2020, a portion of the loan was settled via a subscription for preference shares in AttAfrica Limited of an equivalent value. Refer to F1.6 for movement in expected credit losses.

M5.2.3 Trade receivables
 
Group  Company 
June 2020 
R'000 
June 2019 
R'000 
June 2020 
R'000 
June 2019 
R'000 
Maximum exposure  187 725  148 175  154 016  67 564 
     Gross trade receivables  313 933  174 970  211 242  94 359 
     Accumulated expected credit losses  (126 208) (26 795) (57 226) (26 795)
Mitigating balances  317 339  323 096  292 198  294 222 
     Bank guarantees on behalf of tenants in favour of the Group  223 680  235 212  207 264  214 004 
     Tenant deposits held by the Group  93 659  87 884  84 934  80 218 
*Includes assets classified as held-for-sale 
M5.2.3.1 Impairment of trade receivables
 

The Group has applied the simplified approach permitted by IFRS 9 to determine the expected credit loss for trade receivables resulting in a calculation of lifetime expected credit losses. See F2.2 for further information on the calculation of ECLs.

Group   Company  
June 2020 
R'000 
June 2019 
R'000 
June 2020 
R'000 
June 2019 
R'000 
Movement reconciliation 
Balance at the beginning of the year  26 795  49 624  26 795  8 933 
Provision for expected credit losses raised during the year  77 682  47 052  35 786  23 712 
Receivables written off during the year  (57 255) (5 850) (5 355) (5 850)
Currency translation adjustment  13 586  1 369  –  – 
Transferred to held-for-sale  (3 582) (65 400) –  – 
Balance at the end of the year  57 226  26 795  57 226  26 795 
Ageing of impaired receivables 
Current  6 673  10 753  6 673  10 753 
30 Days  22 293  4 031  22 293  4 031 
60 Days  7 759  2 745  7 759  2 745 
90+ days  20 501  9 266  20 501  9 266 
Total  57 226  26 795  57 226  26 795 
Ageing of receivables past due but not impaired 
30 days  46 453  2 422  46 453  2 422 
60 days  99  855  99  855 
90+ days  6 401  2 197  6 401  2 197 
Total  52 953  5 474  52 953  5 474 

 

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 Moodys 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
 June 2020
Credit rating
 June 2019
June 2020
%
June 2019
%
June 2020
%
June 2019
%
Absa Bank Limited Ba1 Baa3 49.0 60.6 56.4 73.3
Nedbank Ba1 Baa3 3.2 18.8 3.6 22.7
Standard Bank Group Ba1 Baa3 42.4 20.6 33.8 4.0
Rand Merchant Bank/ FirstRand Group Ba1 n/a 5.3 n/a 6.1 n/a
Other n/a n/a 0.1 n/a 0.1 n/a
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 Moodys 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
 June 2020
Credit rating
 June 2019
June 2020
%
June 2019
%
June 2020
%
June 2019
%
Rand Merchant Bank/ FirstRand Group Ba1 Baa3 2.3 5.8 2.5 4.7
Nedbank Ba1 Baa3 24.2 41.0 26.2 45.3
Standard Bank Group Ba1 Baa3 44.9 53.2 40.4 50.0
ABSA Ba1 n/a 28.6 n/a 30.9 n/a
Total exposure 100.0 100.0 100.0 100.0

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