NOTES TO THE FINANCIAL STATEMENTS 31 DECEMBER 2022 (CURRENCY - SINGAPORE DOLLARS UNLESS OTHERWISE STATED) C14 Financial risk management objectives and policies (continued) The policies for managing each of these risks are broadly summarised below: Interest rate risk As at reporting date, the interest rate profile of the interest-bearing financial instruments is: Group 2022 $’000 2021 $’000 Fixed rate instruments Financial assets 162,783 205,760 Financial liabilities (3,608,264) (1,811,411) (3,445,481) (1,605,651) Variable rate instruments Financial liabilities (2,944,523) (310,930) (2,944,523) (310,930) The Group has cash balances placed with reputable banks and financial institutions. The Group manages its interest rate risk on its interest income by placing the cash balances in varying maturities and interest rate terms with due consideration to operating cash flow requirements and optimising yield. The Group’s debts include bank loans, Medium Term Notes (MTN), commercial papers and lease liabilities (2021: bank loans, Medium Term Notes (MTN), commercial papers and lease liabilities). The Group seeks to minimise its interest rate risk exposure through tapping different sources of funds to refinance the debt instruments and/or enter into interest rate swaps. An increase/decrease of 50 basis points in interest rate, with all other variables being held constant, would lead to a reduction/increase of the Group’s profit or loss by approximately $14.7 million (2021: $1.6 million). The Group’s policy is to maintain at least 50% of its borrowings at fixed rate, using floating-to-fixed interest rate swaps to achieve this when necessary. During 2022 and 2021, the Group’s borrowings at variable rate were mainly denominated in USD. Except bank loans of $nil (2021: $132.4 million), other variable interest rates borrowings were not referenced to inter-bank offered rates (IBORs) that will be affected by the IBOR reforms. Included in the variable rate borrowings is a USCP of $2.7 billion (2021: $350.9 million) whose interest rate on each rollover correlates with 3-month LIBOR. To hedge the variability of the cash flows of the USCP, the Group has entered into a 5-year interest rate swap of notional amount of $161.3 million as at 31 December 2022 (2021: $179.1 million) with key terms that match part of the outstanding USCP on which it pays a fixed rate and receives a variable rate. The Group issued US$700 million of 5-year bonds and US$300 million of 10-year bonds in May 2022 to refinance part of the short term debt that was taken up to fund the acquisition of TransCore Partners, LLC and TLP Holdings, LLC (collectively, “TransCore”). The Group entered into US$1 billion of 10-year treasury locks in 4Q 2021 to lock in the U.S. Treasury forward yield in order to mitigate the volatility in the U.S. Treasury yield on the Group’s expected bond issuance. Upon bond issuance, the treasury locks were settled for gains of US$91.4 million. US$59.4 million of the settlement gains were allocated to reduce interest expense on the bonds issued, while the remaining US$32 million of settlement gains are to be amortised against the next bond issuance. The Group’s borrowings and receivables are carried at amortised cost. The borrowings are periodically contractually repriced and to that extent are also exposed to the risk of future changes in market interest rates. CORPORATE OVERVIEW PERFORMANCE REVIEW SUSTAINABILITY FINANCIAL REPORT 189
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