138 / 148
Notes to the consolidated
financial statements
continued
for the year ended 30 June 2017
136
Hyprop Investments Limited
Integrated annual report and consolidated financial statements
2017
34.
Financial instruments – Fair values and risk management
continued
C – Financial risk management
continued
II. Interest rate risk
Interest rates are monitored and appropriate steps taken to ensure that Hyprop’s exposure to interest rate fluctuations is limited. Through interest
rate swaps, interest rates have been fixed for periods ranging from 2017 to 2024 with an average maturity of 3,4 years (2016: 4,4 years). The average rate
of interest at year-end (excluding Euro debt)
(1)
was 8,9% (2016: 8,9%) for Rand debt and 4,7% (2016: 4,6%) for USD debt (average rate of 6,7% (2016: 6,7%)
for Rand and USD debt combined).
Exposure to interest rate risk
The interest rate profile of the group’s interest-bearing financial instruments as reported to the management of the group is as follows:
June 2017
R000
June 2016
R000
Total bank debt and debt capital market funding (excludes Euro debt)
(1)
:
8 900 638
9 708 925
Less non-controlling interest – Gruppo
(166 631)
(234 307)
Hyprop exposure
8 734 007
9 474 618
Total fixed debt
7 261 517
7 652 666
Total floating debt
1 472 490
1 821 952
8 734 007
9 474 618
Debt at fixed interest rate %
85,2
80,8
South African debt %
100,9
89,6
USD debt %
70,4
72,4
Maturity of fixes (years)
3,4
4,4
South African debt – years
3,9
4,9
USD debt – years
2,7
3,7
Cost of funding %
South African debt %
8,9
8,9
USD debt %
4,7
4,6
(1)
Euro debt is excluded from the above analysis as it is not consolidated in the consolidated statement of financial position
Fair value sensitivity analysis for fixed rate instruments
The group does not account for any fixed rate financial assets or financial liabilities at fair value through profit or loss, and the group does not
designate derivatives (interest rate swaps and forex collars) as hedging instruments under a fair value hedge accounting model. Therefore, a change in
interest rates at the reporting date would not affect profit or loss.
Interest rate sensitivity analysis for variable rate instruments
The sensitivity analysis includes the exposure to interest rates for both derivatives and non-derivative instruments at the end of the financial year. For
floating rate liabilities it is assumed that the liability outstanding at the end of the year was outstanding for the whole year.
Based on year-end floating debt, 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 2017 by R22,1 million (2016: R27,3 million).
III. Credit risk
Receivables
The group is exposed to credit risk due to trade receivables. The maximum exposure to credit risk at the reporting date is the fair value of each class
of receivable. Save for national tenants, a deposit in the form of cash or a bank guarantee is obtained from the tenant in terms of Hyprop’s deposit
policy. Furthermore, and only if required, a deed of suretyship will be obtained from a tenant.
Total amount held in bank guarantees across the group: R192 million, and held as tenant deposits: R78 million.
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.
Guarantees
The off-shore funding provided to Hystead and its subsidiaries has been supported by a guarantee from Hyprop. Hyprop has guaranteed the due and
functional performance of obligations in terms of third-party Euro funding amounting to EUR300 million (2016: EUR205 million) and has given certain
undertakings to and in favour of FirstRand Bank Limited (acting through its Rand Merchant Bank division).
IV. Liquidity risk
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. 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.
This risk is minimised by holding cash balances and a floating loan facility. In addition, the company regularly monitors forecast cash flows and
considers the matching of maturity profiles of financial assets and liabilities.