Annual Report for the year ended 31 March 2010

Notes to the consolidated
financial statements

22. Borrowings

Carrying value and fair value information

Notes:

(1)

At 31 March 2010 amount includes £604 million (2009: £691 million) in relation to collateral support agreements.

(2)

Amounts at 31 March 2010 includes £3,405 million (2009: £3,606 million) in relation to the written put options disclosed in note 12 and written put options granted to the Essar Group that, if exercised, would allow the Essar Group to sell its 33% shareholding in Vodafone Essar to the Group for US$5 billion or to sell up to US$5 billion worth of Vodafone Essar shares at an independently appraised fair market value.

Banks loans include a ZAR 4.85 billion loan borrowed by Vodafone Holdings SA Pty Limited (‘VHSA’), which directly and indirectly owns the Group’s 65% interest in Vodacom Group Limited. VHSA has pledged its 100% equity shareholding in Vodafone Investments SA (‘VISA’), which holds a direct 20.1% equity shareholding in Vodacom Group Limited, as security for its loan obligations. The terms and conditions of the pledge mean that should VHSA not meet all of its loan payment and performance obligations, the lenders may sell the equity shareholding in its subsidiary VISA at market value to recover their losses, with any remaining sales proceeds being returned to VHSA. Vodafone International Holdings B.V. has also guaranteed this loan with recourse only to the VHSA shares it has pledged. The terms and conditions of the security arrangement mean the lenders may be able to sell these respective shares in preference to the VISA shares held by VHSA. An arrangement has been put in place where the Vodacom Group Limited shares held by VHSA and VISA are held in an escrow account to ensure the shares cannot be sold to satisfy the pledge made by the Company. The maximum collateral provided is ZAR 4.85 billion, being the carrying value of the bank loan at 31 March 2010 (2009: ZAR 6.4 billion). Bank loans also include INR175 billion of loans held by Vodafone Essar Limited (‘VEL’) and its subsidiaries (the ‘VEL Group’). The VEL Group has a number of security arrangements supporting certain licences secured under the terms of tri-party agreements between the relevant borrower, the department of telecommunications, Government of India and the agent representing the secured lenders and certain share pledges of the shares under VEL. The terms and conditions of the security arrangements mean that should members of the VEL Group not meet all of their loan payment and performance obligations, the lenders may sell the pledged shares and enforce rights over the certain licences under the terms of the tri-party agreements to recover their losses, with any remaining sales proceeds being returned to the VEL Group. Each of the eight legal entities within the VEL Group provide cross guarantees to the lenders in respect to debt contracted by the other seven.

The fair value and carrying value of the Group’s short-term borrowings is as follows: :

The fair value and carrying value of the Group’s long-term borrowings is as follows:

During the year ended 31 March 2010 fair value hedge relationships relating to bonds with nominal value US$2,750 million (£1,810 million), €4,750 million (£4,125 million) and AUD 265 million (£161 million) were de-designated.

Fair values are calculated using quoted market prices or discounted cash flows with a discount rate based upon forward interest rates available to the Group at the end of reporting period date.

Maturity of borrowings

The maturity profile of the anticipated future cash flows including interest in relation to the Group’s non-derivative financial liabilities on an undiscounted basis which, therefore, differs from both the carrying value and fair value, is as follows:

The maturity profile of the Group’s financial derivatives (which include interest rate and foreign exchange swaps), using undiscounted cash flows, is as follows:

The currency split of the Group’s foreign exchange derivatives, all of which mature in less than one year, is as follows:

Payables and receivables are stated separately in the table above as settlement is on a gross basis. The £37 million net receivable (2009: £67 million net receivable) in relation to foreign exchange financial instruments in the table above is split £95 million (2009: £37 million) within trade and other payables and £132 million (2009: £104 million) within trade and other receivables.

The present value of minimum lease payments under finance lease arrangements under which the Group has leased certain of its equipment is analysed as follows:

Interest rate and currency of borrowings

Notes:

(1)

The weighted average interest rate for the Group’s euro denominated fixed rate borrowings is 5.3% (2009: 5.1%). The weighted average time for which the rates are fixed is 3.4 years (2009: 6.7 years). The weighted average interest rate for the Group’s US dollar denominated fixed rate borrowings is 5.5% (2009: 6.6%). The weighted average time for which the rates are fixed is 12.3 years (2009 25.4 years). The weighted average interest rate for the Group’s other currency fixed rate borrowings is 10.1% (2009: 10.1%). The weighted average time for which the rates are fixed is 1.5 years (2009: 2.5years).

(2)

Other borrowings of £3,405 million (2009: £3,606 million) are the liabilities arising under put options granted over direct and indirect interests in Vodafone Essar.

The figures shown in the tables above take into account interest rate swaps used to manage the interest rate profile of financial liabilities. Interest on floating rate borrowings is generally based on national LIBOR equivalents or government bond rates in the relevant currencies.

At 31 March 2010 the Group had entered into foreign exchange contracts to decrease its sterling currency borrowings above by £8,257 million and to increase its euro, US dollar, Japanese yen and other currency borrowings above by amounts equal to £5,473 million, £1,490 million, £527 million and £730 million respectively.

At 31 March 2009 the Group had entered into foreign exchange contracts to decrease its sterling and other currency borrowings above by amounts equal to £6,039 million and £1,204 million respectively and to increase its euro, US dollar and Japanese yen borrowings above by amounts equal to £5,582 million, £1,400 million and £194 million respectively.

Further protection from euro and US dollar interest rate movements on debt is provided by interest rate swaps. At 31 March 2010 the Group had euro denominated interest rate swaps for amounts equal to £6,335 million and US dollar denominated interest rate swaps for amounts equal to £5,761 million. The average effective rate which has been fixed is 1.21% in relation to euro denominated interest rate swaps and 0.92% in relation to US dollar denominated interest rate swaps.

The Group has entered into euro and US dollar denominated interest rate futures. The euro denominated interest rate futures cover the period June 2010 to September 2010, September 2010 to December 2010 and December 2010 to March 2011 for amounts equal to £7,888 million, £8,461 million and £4,067 million respectively. The average effective rate which has been fixed is 1.27%. The US dollar denominated interest rate futures cover the period June 2010 to September 2010, September 2010 to December 2010 and December 2010 to March 2011 for amounts equal to £3,197 million, £2,582 million and £1,119 million respectively. The average effective rate which has been fixed is 0.86%.

At 31 March 2009 the Group had entered into euro and US dollar denominated interest rate futures. The euro denominated futures covered the period June 2009 to September 2009, September 2009 to December 2009 and December 2009 to March 2010 for amounts equal to £6,845 million, £6,061 million and £3,931 million respectively. The US dollar denominated interest rate futures cover the period June 2009 to September 2009, September 2009 to December 2009 and December 2009 to March 2010 for amounts equal to £7,003 million, £7,871 million, and £9,333 million respectively.

Borrowing facilities

At 31 March 2010 the Group’s most significant committed borrowing facilities comprised two bank facilities of US$4,115 million (£2,709 million) and US$5,025 million (£3,308 million) both expiring between one and three years (2009: two bank facilities of US$4,115 million (£2,878 million) and US$5,025 million (£3,514 million)), a US$650 million (£428 million) bank facility which expires in more than 5 years (2009: £nil), a ¥259 billion (£1,821 million, 2009: ¥259 billion (£1,820 million)) term credit facility, which expires within one year, two loan facilities of €400 million (£356 million) and €350 million (£312 million) both expiring between two and five years and a loan facility of €410 million (£365 million) which expires in more than five years (2009: two loan facilities of €400 million (£370 million) and €350 million (£324 million)). The US dollar bank facilities remained undrawn throughout the financial year, the ¥259 billion term credit facility was fully drawn down on 21 December 2005, the €400 million and €350 million loan facilities were fully drawn on 14 February 2007 and 12 August 2008 respectively and the €410 million facility remains undrawn.

Under the terms and conditions of the US$4,115 million and US$5,025 million bank facilities, lenders have the right, but not the obligation, to cancel their commitment 30 days from the date of notification of a change of control of the Company and have outstanding advances repaid on the last day of the current interest period.

The facility agreements provide for certain structural changes that do not affect the obligations of the Company to be specifically excluded from the definition of a change of control. This is in addition to the rights of lenders to cancel their commitment if the Company has committed an event of default.

Substantially the same terms and conditions apply in the case of Vodafone Finance K.K.’s ¥259 billion term credit facility although the change of control provision is applicable to any guarantor of borrowings under the term credit facility. Additionally, the facility agreement requires Vodafone Finance K.K. to maintain a positive tangible net worth at the end of each financial year. As of 31 March 2010 the Company was the sole guarantor.

The terms and conditions of the €400 million loan facility are similar to those of the US dollar bank facilities, with the addition that, should the Group’s Turkish operating company spend less than the equivalent of US$800 million on capital expenditure, the Group will be required to repay the drawn amount of the facility that exceeds 50% of the capital expenditure.

The terms and conditions of the €350 million loan facility are similar to those of the US dollar bank facilities, with the addition that, should the Group’s Italian operating company spend less than the equivalent of €1,500 million on capital expenditure, the Group will be required to repay the drawn amount of the facility that exceeds 18% of the capital expenditure.

In addition to the above, certain of the Group’s subsidiaries had committed facilities at 31 March 2010 of £5,759 million (2009: £4,725 million) in aggregate, of which £1,647 million (2009: £1,571 million) was undrawn. Of the total committed facilities £1,139 million (2009: £675 million) expires in less than one year, £2,880 million (2009: £2,275 million) expires between two and five years, and £1,740 million (2009: £1,775 million) expires in more than five years.

Redeemable preference shares

Redeemable preference shares comprise class D and E preferred shares issued by Vodafone Americas, Inc. An annual dividend of US$51.43 per class D and E preferred share is payable quarterly in arrears. The dividend for the year amounted to £56 million (2009: £51 million). The aggregate redemption value of the class D and E preferred shares is US$1.65 billion. The holders of the preferred shares are entitled to vote on the election of directors and upon each other matter coming before any meeting of the shareholders on which the holders of ordinary shares are entitled to vote. Holders are entitled to vote on the basis of twelve votes for each share of class D or E preferred stock held. The maturity date of the 825,000 class D preferred shares is 6 April 2020. The 825,000 class E preferred shares have a maturity date of 1 April 2020. The class D and E preferred shares have a redemption price of US$1,000 per share plus all accrued and unpaid dividends.

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