EDC PR 2016 (FS section)

Derivative financial instruments are initially recognized at fair value on the date on which a
derivative contract is entered into and are subsequently re-measured at fair value. Derivatives are
carried as assets when the fair value is positive and as liabilities when the fair value is negative.
Any gains or losses arising from changes in fair value on derivatives that do not qualify for hedge
accounting are taken directly to the profit or loss.
For the purpose of hedge accounting, derivatives can be designated as cash flow hedges or fair
value hedges, depending on the type of risk exposure.
At the inception of a hedge relationship, the Company formally designates and documents the
hedge relationship to which the Company wishes to apply hedge accounting and the risk
management objective and strategy for undertaking the hedge. The documentation includes
identification of the hedging instrument, the hedged item or transaction, the nature of the risk
being hedged and how the entity will assess the hedging instrument’s effectiveness in offsetting
the exposure to changes in the hedged item’s fair value or cash flows attributable to the hedged
risk. Such hedges are expected to be highly effective in achieving offsetting changes in fair value
or cash flows and are assessed on an ongoing basis to determine that they actually have been
highly effective throughout the financial reporting periods for which they were designated.
In 2012, the Parent Company designated its cross currency swaps as cash flow hedges for its
exposures on foreign currency and interest rate risks on a portion of its floating rate Club Loan
that is benchmarked against US LIBOR. In 2014, EBWPC designated its interest rate swaps as
cash flow hedges for its exposure on interest rate risks on portions of its floating rate
US$150 million ECA and US$37.5 million Commercial Debt Facilities that is benchmarked
against US LIBOR (see Notes 17 and 31). In 2016, the Parent Company designated its call spread
swaps as cash flow hedges for its exposures on its $80.0 million term loan that is bench marked
against US LIBOR.
Cash Flow Hedges
Cash flow hedges are hedges on the exposure to variability of cash flows that are attributable to a
particular risk associated with a recognized asset, liability or a highly probable forecast transaction
and could affect profit or loss. The effective portion of the gain or loss on the hedging instrument
is recognized as other comprehensive income (loss) in the “Fair value adjustments on hedging
transactions” account in the consolidated statement of financial position while the ineffective
portion is recognized as “Mark-to-market gain (loss) on derivatives - net” under “Miscellaneous
income (charges)” in profit or loss.
Amounts taken to other comprehensive income (loss) are transferred to the profit or loss when the
hedge transaction affects profit or loss, such as when hedged financial income or expense is
recognized or when a forecast sale or purchase occurs. Where the hedged item is the cost of a
non-financial asset or liability, the amounts taken to OCI are transferred to the initial carrying
amount of the non-financial asset or liability.
If the forecast transaction is no longer expected to occur, amounts previously recognized in OCI
are transferred to the profit or loss. If the hedging instrument expires or is sold, terminated or
exercised without replacement or rollover, or if its designation as hedge is revoked, amounts
previously recognized in OCI remain in equity until the forecast transaction occurs. If the related
transaction is not expected to occur, the amount is recognized in profit or loss.
Embedded Derivatives
An embedded derivative is a component of a hybrid (combined) instrument that also includes a
non-derivative host contract with the effect that some of the cash flows of the combined
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I Energy Development Corporation Performance Report 2016