2012 Annual Report - ZTE

ANNUAL REPORT 2012Notes to Financial Statements (continued)(Prepared in accordance with PRC ASBEs)(All amounts in RMB’000 unless otherwise stated)(English translation for reference only)XI.OTHER SIGNIFICANT MATTERS (continued)4. Financial instruments and risk analysis (continued)Market risk (continued)Interest rate risk (continued)The Group’s interest risk policy is to manage interest rate risk by maintaining an appropriate mix offixed and variable rate instruments. The Group’s policy is to maintain the fixed interest rate between1.3% and 12.75%. In addition, the Group borrowed a USD900 million loan at floating interest rates. TheGroup intends to enter into interest rate swaps with a nominal principal amount of no more than USD900million at an appropriate timing as a hedge against the said USD loan, in which the Group agreesto exchange, at specified intervals, the difference between fixed and variable rate interest amountscalculated by reference to an agreed-upon notional principal amount. These swaps are designated tohedge underlying debt obligations. As at 31 December 2012, taking into account interest rate swaps fora nominal principal amount of USD100 million (2011: USD100 million) already executed, approximately32% (2011: 26%) of the Group’s interest bearing borrowings were subject to interests at fixed rates.Interest-bearing borrowings with floating interest rate were mainly denominated in USD. The sensitivityanalysis of interest rate risks is set out in the following table, reflecting the impact of reasonableand probable change in interest rates on net profit (through the impact on floating rate loans) andshareholders’ equity assuming that other variables remain constant and taking into account the effectof interest rate swaps.Increase/(decrease) inbasis pointsIncrease/(decrease) innet profitIncrease/(decrease) inshareholders’equity*2012 0.25% (31,593) 5,764(0.25%) 31,593 (5,764)2011 0.25% (34,740) 7,031(0.25%) 34,740 (7,031)* excluding retained earnings.291