CORRAL PETROLEUM HOLDINGS AB (PUBL) - Preem

In addition to price risk management of the inventories position, the Board of Directors has defined scope forspeculative trading in oil derivatives. These transactions are limited by the definition of a ceiling for a maximum gain orloss for such trading. The Group’s loss may not be any higher than USD 10,000 per transaction and USD 50,000 perannum per individual trader. Transactions on which the Group makes a joint decision may amount to a maximum of alevel that falls within the deviation range in normal position management, and may involve a maximum loss of up toUSD 500,000 in one transaction and USD 2,500,000 per annum. These transactions must first of all always be approvedby the head of the Trading Department. The Group had as of December 31 for 2010 and 2009 respectively no position inregards to speculative trading in oil derivatives.Interest rate risk in respect of cash flows and fair valuesThe Group’s interest rate risk arises through both borrowing and lending.Loans with a variable interest rate expose the Group to an interest rate risk in respect of cash flow. Loans with afixed interest rate expose the Group to an interest rate risk in respect of fair value. The Group’s borrowing is at both fixedand variable interest rate. The interest rate risk in respect of cash flow is balanced to a light extent by borrowing at afixed rate and the use of interest rate swaps. It is the Group’s policy to have a fixed-interest period that does not exceed12 months. As of December 31, 2010 the remaining fixed-interest period totaled approx. 7.0 months. In 2010 the Group’sborrowing on variable interest rate terms consisted of SEK and USD, and fixed interest rate consisted of USD and EURfor bond loans.The Group’s interest-bearing assets are in the form of loans to associates and to a lesser extent currentinvestments in cash and cash equivalents. Loans to associates have been issued on standard market terms at a fixedinterest rate, which means that the Group is exposed to fair value risk.The Group’s outstanding borrowing as of the balance sheet date for both non-current and current loans, arrangedwith credit institutions totals SEK 14,630 million (20,227). The Group’s loan terms, effective interest rates and thematurity structure of the loans are described in note 28.If interest rates for borrowing expressed in SEK during the year had been 1.0 per cent higher/lower, with allother variables constant, the profit (loss) after tax for the fiscal year would have been SEK 49 million (143) lower/higher,mainly because of the higher/lower interest rate costs of borrowing at variable interest rates.Credit riskCredit risks arise through investments in cash and cash equivalents, derivatives and credit exposure to the largenumber of customers to which sales are made on credit. In order to limit this exposure, there are joint Group creditpolicies, which mean inter alia that only banks and financial institutions are accepted that have been given a credit ratingof at least “A” by Standard and Poor’s or by an equivalent independent assessor. As far as the Group’s customers areconcerned, a risk assessment is conducted of each customer’s creditworthiness in which the customer’s financial positionis considered, and previous experiences and other factors are assessed. Individual risk limits are defined on the basis ofinternal or external credit ratings. The Group has a credit committee that handles these matters. The Group also usessecurities in the form of, for example, Letters of Credit, bank guarantees, deposits and Parent Company mortgages. Thereis regular follow-up on the use of credit limits. The credit risk is controlled at Group level.Most of the credit exposure in terms of amounts is towards financially strong oil companies. On the basis of theGroup’s ongoing analysis of its customers, the credit quality is considered to be good. During the year the Group onlyhad provisions for doubtful receivables of SEK 16 million (22), compared with sales revenue of SEK 77,256 million(63,813).The Group has a loan issued to Corral Morocco Gas & Oil AB, which is an associate, of SEK 3,136 million. Theloan has a standard market interest rate of 5% of the nominal loan amount. The interest income is capitalized andincreases the original receivable. As of 31 December 2010, the total receivable is amounted to SEK 3,340 million. Theloan and interest fall due for payment no later than on February 6, 2013 unless otherwise agreed prior to this date. Thereis no guarantee provided towards CMGO in connection to this receivable.Counterparties during the year for derivative trading in interest rate swaps only took place with banks andfinancial institutions with a credit rating of at least “A” from Standard and Poor’s or an equivalent independent assessor.Other oil companies, banks and trading companies are counterparties for trading in oil derivatives. In order to limitcounterparty risks when trading in oil derivatives, the Company concludes so-called ISDA contracts.For further information see note 23.F-19