notes to the financial statements - Singapore Technologies ...

SINGAPORE TECHNOLOGIES ENGINEERING LTD Annual Report 2011223NOTES TO THE FINANCIAL STATEMENTS31 December 2011(Currency - Singapore dollars unless otherwise stated)48. Fair value of financial instruments (continued)(a)Forward currency contracts(i)As at 31 December 2011, the Group has forward currency contracts and embedded derivatives separated from the foreign currencyportion of sales contracts amounting to $750,815,000 (2010: $640,856,000) designated as hedges of confirmed sales in foreigncurrencies, firm purchase commitments in foreign currencies, accounts receivable in foreign currencies and accounts payable inforeign currencies.The maturity dates of the forward currency contracts and embedded derivatives separated from the foreign currency portion of thesales contracts approximate the timing of the expected cash flows of their respective hedged items, which are on varying periods upto 6 years from the financial year-end.(ii)As at 31 December 2011, the Group has outstanding forward currency contracts and embedded derivatives separated from theforeign currency portion of sales contracts amounting to $271,316,000 (2010: $157,908,000), which are not designated as hedgesof confirmed sales in foreign currencies and firm purchase commitments in foreign currencies.(b)Interest rate swapsAs at 31 December 2011, the Group has outstanding interest rate swaps amounting to $340,479,000 (2010: $557,800,000), which aredesignated as cash flow hedges.The USD interest rate swaps are being used to hedge the exposure to variability in cash flows associated with the floating rate of the unsecuredUSD long-term loans. Under the USD interest rate swaps, the Group pays fixed rates of interest of 3.68% to 3.80% (2010: 3.68% to 3.86%)per annum and receives variable rates of interest equal to the LIBOR per annum on the notional amount. The USD interest rate swaps have thesame maturity terms as the unsecured USD long-term loans due in 2013.During the year, the Group entered into a new Euro interest rate swap which is used to hedge 72% of the exposure to variability in cash flowsassociated with the floating rate of a cross currency swap. Under the Euro interest rate swap, the Group pays a fixed rate of interest of 2.50%per annum and receives a variable rate of interest equal to the EURIBOR per annum on the notional amount. The Euro interest rate swap has thesame maturity terms as the cross currency swap.In the prior year, the Group had a Euro interest rate swap which the Group paid a fixed rate of interest of 2.95% per annum and received avariable rate of interest equal to the EURIBOR + 1.2% per annum on the notional amount. The cross interest rate swap matured during the year.(c)Cross currency swapAs at 31 December 2011, the Group has an outstanding cross currency swap amounting to $216,255,000 (2010: $248,481,000), which isdesignated as hedging instrument in a cash flow hedge relationship.During the year, the Group entered into a new USD cross currency swap which is used to hedge foreign currency exposure of a USD bank loanmaturing in 2014. It converts the USD bank loan with floating USD interest rate at LIBOR + 0.60% per annum to an equivalent Euro bank loan(Euro 120,000,000) with floating Euro interest rate at EURIBOR + 0.41% per annum.In the prior year, the Group had a SGD cross currency swap which converted a SGD bank loan with floating SGD interest rate at SIBOR + 1.325%per annum to an equivalent Euro bank loan (Euro 112,300,000) with floating Euro interest rate at EURIBOR + 1.2% per annum. The crosscurrency swap matured during the year.