2012 Annual Report - ZTE

ZTE CORPORATIONNotes to Financial Statements (continued)(Prepared in accordance with PRC ASBEs)(All amounts in RMB’000 unless otherwise stated)(English translation for reference only)V. EXPLANATORY NOTES TO MAJOR ITEMS IN THE CONSOLIDATED FINANCIAL STATEMENTS(continued)1. Cash (continued)Under the factored trade receivables agreements between the Group and certain domestic banks,provisions are being made for a risk compensation fund at a mutually determined percentage basedon the risk profile of the facilities concerned. The risk compensation fund shall be released on a proratabasis in respect of the facilities if there is no overdue principal or interest payment at the agreedfinal payment date, or when the principal and interest of the banking facilities have been fully settled.As at 31 December 2012, the risk compensation fund under the arrangements for loans and factoredtrade receivables amounted to RMB3,568,024,000 (31 December 2011: RMB1,170,599,000). Riskcompensation fund to be released within one year amounting to RMB410,947,000 (31 December 2011:RMB220,933,000) was accounted for as cash subject to ownership restriction. Risk compensation fundto be released after one year amounting to RMB3,157,077,000 (31 December 2011: RMB949,666,000)was accounted for as other non-current assets.As at 31 December 2012, the Group’s overseas currency deposits amounted to RMB5,572,193,000 (31December 2011: RMB3,547,475,000).Current bank deposits earn interest income based on current deposit interest rate. The period fortime deposits varies from 7 days to 1 year. The short-term time deposits, subject to the Group’s cashneeds, earn interest income based on corresponding time deposits interest rate. Time deposit of overthree months amounting to RMB86,608,000 (31 December 2011: RMB85,000,000) were not includedin cash and cash equivalents. Out of this amount, time deposit of RMB15,000,000 was pledged byNetex Cayman Holdings Co. Ltd to secure a RMB12,571,000 loan.2. Trading financial assets2012 2011Financial assets at fair value through profit or loss 44,919 87,180Derivative financial assets 61,378 8,438106,297 95,618Financial assets at fair value through profit or loss are 1.15% of equity held by the Company in NationzTechnologies Inc. (“Nationz Technologies”).Trading in derivative financial instruments comprised two components: one component comprisedtransactions in forward exchange contracts with reputable banks in the PRC and Hong Kong withcredit ratings of A- or above. As such forward exchange contracts were not designated for hedgingpurpose, they were dealt with at fair value through current profit or loss. For the year, loss arising fromfair value changes of non-hedging derivative financial instruments amounting to RMB49,456,000 (2011:RMB77,860,000) was dealt with in current profit or loss. The other component comprised the forwardcontract signed for purchasing the convertible bond and restricted shares between ZTE (H.K.) Limitedand China All Access (Holdings) Limited.202