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NOTES TO THE

FINANCIAL STATEMENTS

28 FINANCIAL RISK MANAGEMENT (CONTINUED)

(d) Interest rate risk

The Group’s exposure to changes in interest rates relates primarily to interest-bearing

borrowings at floating rates. Interest rate risk is managed by the Group on an on-going basis

with the primary objective of limiting the extent to which net interest expense could be

affected by an adverse movement in interest rates. In order to minimise exposure to changes

to interest rates, the Group has purchased certain hedging instruments, the purpose of which

is to fix the interest rates payable on its loan facilities.

The Group finances its operations through a mixture of retained earnings, interest-bearing

loans and borrowings and capital raised. The Group borrows in the desired currencies at

floating rates and uses interest rate swap contracts to generate the desired interest rate

profile and to manage the Group’s exposure to interest rate fluctuations.

The Group completed a series of refinancing in December 2010 and unwound the interest rate

swaps linked to the replaced loans. Other than an interest rate swap with a notional principal

amount of US$55.0 million effective from 22 December 2011, the Group’s interest-bearing

liabilities are at floating rates of interest at 31 December 2011. The fair value of this interest

rate swap as at 31 December 2012 was a liability of S$166,000 (31 December 2011: S$126,000).

In the current financial year, the Group entered into an interest rate swap with a notional

principal amount of US$135.0 million effective from 26 January 2012 to 27 January 2014. The

fair value of the outstanding interest rate swaps as at 31 December 2012 was a liability of

S$1,074,000.

As at the reporting date, the interest rate profile of the interest-bearing financial instruments

was as follows:

2012

2011

$’000

Fixed rate instruments

Cash and cash equivalents

2,490

19,794

Debt securities

(76,437)

(69,493)

(73,947)

(49,699)

Variable rate instruments

Cash and cash equivalents

39,590

25,804

Interest-bearing borrowings

(859,104)

(855,284)

(819,514)

(829,480)