Telkom AR front.qxp

Notes to the annual financial statements (continued)
for the three years ended March 31, 2009
12. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)
12.1. Fair value of financial instruments
Telkom Annual Report 2009 277
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. This value is not necessarily indicative of the amounts that the Company could realise in the normal course
of business.
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 carrying value of receivables, bank balances, repurchase agreements and other liquid funds, payables and accruals, approximate
their fair value 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.
12.2 Interest rate risk management
Interest rate risk arises from the repricing of the Company’s forward cover and floating rate debt as well as incremental funding or new
borrowings and the refinancing of existing borrowings.
The Company’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 Company makes use of interest rate derivatives as approved in terms of the Company policy limits. Fixed
rate debt represents approximately 64.86% (2008: 57.03%; 2007: 98.83%) of the total debt. The debt profile of mainly fixed rate debt
has been maintained to limit the Company’s exposure to interest rate increases given the size of the Company’s debt portfolio. 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
coupon
Average amount rate
maturity Currency Rm %
2009
Interest rate swaps outstanding
Pay fixed 2-5 years ZAR 2,000 10.84
2008
Interest rate swaps outstanding
Pay fixed – – – –
2007
Interest rate swaps outstanding
Pay fixed < 1 year ZAR 1,000 14.67
Pay fixed
The floating rate is based on the three months JIBAR, and is settled quarterly in arrears. The interest rate swaps are used to manage
interest rate risk on debt instruments.