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TNB Financial Report 2002
57
24. Borrowings (Continued)
Other unsecured borrowings with hedging arrangements (continued)
(b)
10-YEAR USD500 MILLION NOTES
In April 1997, the Company issued USD500 million 10-year 7.625% redeemable unsecured Notes. The translated RM balance of the Notes as at
31 August 2002 as per the Company’s accounting policy is RM2,026.1 million (2001: RM1,997.4 million). The Notes are redeemable in full on
29 April 2007. For the purposes of hedging the Notes, the Company has adopted two strategies for each USD250 million tranche of the Notes.
Tranche 1: USD250 million
USD-JPY cross-currency swap (‘CCS’) and JPY interest rate collar
On the first USD250 million tranche, the Company has entered into cross-currency swap (‘CCS’) agreements in 1997 and 1998, that entitle
it to receive a fixed rate of 7.625% in USD and oblige it to pay floating interest rates in JPY. The principals of the swaps amount to USD250
million and this would be received by the Company in return for the payment of JPY31.6 billion on maturity. The swaps terminate on
27 April 2007.
The Company has also entered into various interest rate collar arrangements with the effect of limiting the JPY floating rate liability to a
maximum rate but subject to a minimum rate.
Forward interest rate swap
On the same tranche of JPY31.6 billion, upon maturity of the aforementioned JPY interest rate collar arrangements, the Company has
entered into IRS agreements that entitle it to receive interest at floating rates and oblige it to pay interest at fixed rates in the range of
3.71% to 4.38% (dependent on the swap counterparty) on notional principals of JPY31.6 billion, maturing on 27 April 2007.
The effect of the above transactions is to convert the USD fixed rate Notes into a JPY fixed rates liability.
Tranche 2: USD250 million
USD-JPY Cross-currency swap and JPY interest rate collar
On the second USD250 million tranche, the Company has entered into CCS/IRS agreements in 1998 that entitle it to receive a fixed rate of
7.625% in USD and oblige it to pay floating interest rates in JPY. The principals of the swaps amount to USD250 million and this would be
received by the Company in return for the payment of JPY31.4 billion upon maturity. The swaps terminate on 28 April 2007.
The Company has also entered into interest rate collar arrangements with notional principals of JPY18.7 billion for the period from
28 April 1999 to 27 April 2007 which hedges the JPY floating interest rate payable on the above swap.
The effect of these transactions is to convert the USD fixed rate Notes into a JPY floating rate liability. For notional principals of
JPY18.7 billion, the floating rates are limited to a maximum and minimum rate.