VECTOR ANNUAL REPORT 2021 /
Notes to the Financial Statements
21. Derivatives and hedge accounting continued
2021 $M
2020 $M
AMOUNT AFTER APPLYING RIGHTS OF OFFSET
AMOUNT AFTER APPLYING RIGHTS OF OFFSET
DERIVATIVES POSITION AS PER BALANCE SHEET
DERIVATIVES POSITION AS PER BALANCE SHEET
UNDER ISDA AGREEMENTS
UNDER ISDA AGREEMENTS
103.3
39.3
Derivative assets Derivative liabilities
220.4
152.1
(165.6)
(101.6)
(104.9)
(36.6)
Net amount
(62.3)
(62.3)
115.5
115.5
Rights to offset
Vector enters into derivative transactions under International Swaps and Derivatives Association (ISDA) master agreements. The ISDA agreements do not meet the criteria for offsetting in the balance sheet for accounting purposes. This is because Vector does not have any currently legally enforceable right to offset recognised amounts. Under the ISDA agreements the right to offset is enforceable only on the occurrence of future events such as a default on the bank loans or other credit events. The potential net impact of this offsetting is disclosed in column ‘amount after applying rights of offset under ISDA agreements. Vector does not hold and is not required to post collateral against its derivative positions. The group has no derivative that will be affected by the interbank offered rates (“IBOR”) reform as at 30 June 2021. However, the f inancial modelling of the fair values for certain hedge relationships will shift from applying USD LIBOR to an alternative benchmark interest rate when the transition happens, currently expected at the end of 2021. The group is in the process of assessing the expected impact of the shift in f inancial modelling.
Managing interest rate benchmark reform
21.1 Effects of hedge accounting on the financial position and performance The tables below demonstrate the impact of hedged items and the hedging instruments designated in hedging relationships: — The NZD floating rate exposure includes $1,030.0 million arising from hedging the USD senior bonds (2020: $930.0 million), and in
2020 $350.0 million from the floating rate notes as allowable under NZ IFRS 9 Financial Instruments . — The interest rate swaps include $350.0 million of forward starting swaps (2020: $500.0 million).
CHANGE IN FAIR VALUE USED FOR MEASURING INEFFECTIVE- NESS – CASHFLOW HEDGE $M
CHANGE IN FAIR VALUE USED FOR MEASURING INEFFECTIVE- NESS – FAIR
HEDGING (GAIN) OR LOSS RECOGNISED IN CASH FLOW HEDGE RESERVE $M
ACCUMU- LATED FAIR
(GAIN) OR LOSS RECOGNISED IN
VALUE HEDGE ADJUST- MENTS $M
CARRYING AMOUNT ASSETS/ (LIABILITIES) $M
WEIGHTED AVERAGE RATE
FACE VALUE $M
VALUE HEDGE $M
COST OF HEDGING $M
2021
Cash flow hedge – Interest risk Hedged item: NZD floating rate exposure on borrowings Hedging instrument: Interest rate swaps Cash flow and fair value hedges – Interest and exchange risks Hedged item: USD f ixed rate exposure on borrowings Hedging instrument: Cross currency swaps – FV and CF
(1,030.0)
(33.5)
(1,380.0)
2.2%
(33.3)
(33.3)
(71.2)
(1,613.4)
14.1 (1,595.1)
(97.9)
186.7
(1,613.4)
floating
(28.8)
(85.8)
(184.3)
3.4
(2.6)
Ineffectiveness
–
2.4
80
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