2012 Annual Report - ZTE

ZTE CORPORATIONNotes to Financial Statements(Prepared under Hong Kong Financial Reporting Standards)31 December 201230. DERIVATIVE FINANCIAL INSTRUMENTS (continued)Company2012 2011Assets Liabilities Assets LiabilitiesRMB’000 RMB’000 RMB’000 RMB’000Forward currency contracts 9,389 (42,325) — —Forward currency contractsThe carrying amounts of forward currency contracts were the same as their fair values. The above transactionsinvolving derivative financial instruments were with various well-known banks in Mainland China and HongKong with A- or above credit ratings.The Group has entered into these contracts to manage its exchange rate exposure. These forward currencycontracts are not designated for hedge purposes and are measured at fair value through profit or loss.Losses on the fair value amounting to RMB49,456,000 (2011: gains of RMB77,860,000) were recognised inprofit or loss during the year.Other forward contractsOn 16 November 2012, ZTE (HK) Limited (“ZTE HK”), a wholly-owned subsidiary of ZTE entered into ansubscription agreement with China Access (Holdings) Limited (“China All Access”), pursuant to which ZTEHK has agreed to subscribe for 112,000,000 ordinary shares and convertible bonds of HKD201,500,000,the fair value of the forward contract for subscription of ordinary shares and convertible bonds of China AllAccess was RMB35,328,083 and RMB–30,239,072, respectively, as at 31 December 2012. ZTE HK exercisedthe subscription rights and completed the subscription on 15 January 2013.Interest rate swaps — cash flow hedgesInterest rate swaps are designated as hedging instruments in respect of expected interest payments forfloating rate debts incurred by the Group.The terms of the interest rate swaps have been negotiated to match the terms of the debts. The cashflow hedges relating to expected interest payments were assessed to be highly effective and a net loss ofRMB12,736,000 was included in the hedging reserve as follows:Group2012 2011RMB’000 RMB’000Total fair value loss (12,736) (4,120)Net loss on cash flow hedges (12,736) (4,120)392