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180
Telkom Annual Report 2009
Notes to the consolidated annual financial statements (continued)
for the three years ended March 31, 2009
13. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)
13.1 Fair value of financial instruments
Carrying value of all financial instruments noted in the balance sheet approximates fair value except as disclosed below.
The estimated net fair values as at March 31, 2009, have been determined using available market information and appropriate valuation
methodologies as outlined below.
Derivatives are recognised at fair value.
The fair values of derivatives are determined using quoted prices or, where such prices are not available, discounted cash flow analysis is
used. These amounts reflect the approximate values of the net derivative position at the balance sheet date.
The fair value of receivables, bank balances, repurchase agreements and other liquid funds, payables and accruals, approximate their fair
amount due to the short-term maturities of these instruments.
The fair values of the borrowings disclosed above are based on quoted prices or, where such prices are not available, the expected future
payments discounted at market interest rates, as a result they differ from carrying values.
The fair values of listed investments are based on quoted market prices.
13.2 Interest rate risk management
Interest rate risk arises from the repricing of the Group’s forward cover and floating rate debt as well as incremental funding or new
borrowings and the refinancing of existing borrowings.
The Group’s policy is to manage interest cost through the utilisation of a mix of fixed and floating rate debt. In order to manage this mix in
a cost efficient manner and to hedge specific exposure in the interest rate repricing profile of the existing borrowings and anticipated peak
additional borrowings, the Group makes use of interest rate derivatives as approved in terms of the Group policy limits. Fixed rate debt
represents approximately 64.86% (2008: 51.88%; 2007: 90.37%) of the total debt, after taking the instruments listed below into
consideration. There were no changes in the policies and processes for managing and measuring the risk from the previous period.
The table below summarises the interest rate swaps outstanding as at March 31:
Notional Weighted
Average amount average
maturity Currency Rm coupon rate
2009
Interest rate swaps outstanding
Pay fixed 2-5 years ZAR 2,000 10.84%
2008
Interest rate swaps outstanding
Pay fixed < 1 year ZAR 27 13.62%
Receive fixed 1-5 years ZAR 58 13.30%
2007
Interest rate swaps outstanding
Pay fixed < 1 year ZAR 1,000 14.67%
Receive fixed 1-5 years ZAR 38 11.45%
Pay fixed
>5 years ZAR 61 11.44%
The floating rate is based on the three month JIBAR, and is settled quarterly in arrears. The interest rate swaps are used to manage interest
rate risk on debt instruments.