2008 Annual report - Sappi

sappi //
30. Financial instruments (continued)
Expected maturity date
Total 2008 2007 2007
Carrying Fair Carrying Fair
(US$ equivalent in millions) 2009 2010 2011 2012 2013 2014+ Value Value Value Value
Swiss Franc
Fixed rate
Average interest rate (%)
Variable rate 151 – – – – – 151 151 142 142
Average interest rate (%) 3.26 – – – – – 3.26 3.3
Total
Fixed rate 34 64 629 128 159 14 1,028 990 1,170 1,184
Average interest rate (%) 5.43 5.94 4.91 10.55 9.57 9.05 6.47 6.46
Variable rate 787 1 – 487 – 350 1,625 1,531 1,429 1,429
Average interest rate (%) 4.19 10.67 – 6.84 – 7.33 5.66 6.36
Fixed and variable 821 65 629 615 159 364 2,653 2,521 2,599 2,613
Current portion 821 821 771 764
Long term portion 1,832 1,700 1,828 1,898
Total interest-bearing borrowings (refer note 20) 2,653 2,521 2,599 2,662
The fair value of non-current borrowings is estimated by Sappi based on the rates from market quotations for non-current
borrowings with fixed interest rates and on quotations provided by internationally recognised pricing services for notes,
exchange debentures and revenue bonds.
The above mentioned fair values include Sappi’s own credit risk. Please refer to the sensitivity analysis regarding interest rate
risk for additional information regarding Sappi’s rating.
(1) Includes fixed rate loans where fixed-for-floating rate swap contracts have been used to convert the exposure to floating rates. Some of the swaps do not cover
the full term of loans.
(2) The US Dollar floating interest rates are based on the London Inter-bank Offered Rate (LIBOR).
(3) The Euro floating interest rates are based on the European Inter-bank Offered Rate (EURIBOR).
(4) The Rand floating interest rates are predominately based on the Johannesburg Inter-bank Agreed Rate (JIBAR).
The range of interest rates in respect of all non-current borrowings comprising both fixed and floating rate obligations, is
between 2.45% and 11.28% (depending on currency). At September 2008, 39% of Sappi’s borrowings were at fixed rates
of interest, and 61% were at floating rates. Floating rates of interest are based on LIBOR for US$ borrowings, on EURIBOR
for Euro denominated borrowings and on JIBAR for ZAR borrowings. Fixed rates of interest are based on contract rates.
Sappi’s Southern African operations have in the past been particularly vulnerable to adverse changes in short-term domestic
interest rates, as a result of the volatility in interest rates in South Africa. During 2008 domestic interest rates have increased
from 10.26 % to 12.05 % for the 3-month JIBAR.
Sappi uses interest rate options, caps, swaps and interest rate and currency swaps as a means of managing interest rate
risk associated with outstanding debt entered into in the normal course of business. Sappi does not use these instruments
for speculative purposes. Interest rate derivative financial instruments are measured at fair value at each reporting date with
changes in fair value recorded in profit or loss for the period. The group has designated certain derivatives as hedges of fixed
rate debt in a documented hedging strategy.
// 2008 Annual report
151