Form 20-F 2005

At December 31,
2005
At December 31,
2004
Nominal
Fair
value
Nominal
value
Fair
value
(in millions
of euros) Currency < 1 year
1 to
2 years
2 to
3 years
3 to
4 years
4 to
5 years > 5 years Total
Interest rate
swaps
EUR 300 300 (2) 2,050 (11)
Lender Fixed
rate 150 150 (7) 1,000 27
Lender Floating
rate 150 150 5 1,050 (38)
USD 478 (4)
Lender Fixed
rate 184 1
Lender Floating
rate 294 (5)
JPY 42
Lender Fixed
rate 21
Lender Floating
rate 21
Sub-total 300 300 (2) 2,570 (15)
EUR 200 100 300 3
Purchase 200 100 300 3
Caps
Sell
Sub-total 200 100 300 3 2,570
Total 200 400 600 1 2,570 (15)
The interest rate derivatives portfolio generated income of €6 million in fiscal year 2005.
A sudden increase of 1% (100 basis points) in market interest rates would generate an immediate increase of €5 million in
the fair value of the derivatives portfolio not designated as hedges. This rise in the fair value of the interest rate derivatives portfolio
mainly results from caps.
27.2. Foreign exchange risk management
A significant portion of Rhodia’s assets, liabilities, expenses and income is denominated in currencies other than the euro,
mainly the U.S. dollar, Brazilian real and, to a lesser extent, the pound sterling. Changes in these currencies compared with the
euro may have a material impact on the financial position and results of Rhodia.
Rhodia’s policy consists in limiting its exposure to short-term fluctuations in exchange rates by calculating on a daily basis
its net exposure to foreign currencies in its transactions, including both sales and purchases, and by using derivative instruments
to reduce such exposure. The main derivative instruments used by Rhodia are hedging contracts entered into on the open market
with terms of less than one year.
Market instruments held by Rhodia, sensitive to changes in exchange rates, include forward contracts, options, and
foreign-denominated financial assets and liabilities.
Foreign exchange risk on foreign-denominated debt
Rhodia is exposed to exchange rate risk when its financial debt is denominated in a currency other than the reporting currency
of the entities carrying this debt. Using exchange rate derivatives which are not designated as hedges also generates an exchange
rate risk. At December 31, 2005, the amount of debt raised in a currency other than the reporting currency of the entities holding
such debt amounted to €1,100 million, including €1,074 million in U.S. dollars mainly carried by Rhodia S.A.
F-52 Form 20 - F 2005 - Rhodia