NOTES TO THE FINANCIAL STATEMENTS 31 DECEMBER 2024 (CURRENCY – SINGAPORE DOLLARS UNLESS OTHERWISE STATED) C16 Derivative financial instruments (continued) Cash flow hedges (continued) Derivative financial instruments and hedge accounting (continued) Estimates and judgement: Interest rate benchmark reform (continued) The Group’s treasury function is managing the Group’s LIBOR transition plan. The greatest change will be amendments to the contractual terms of the LIBOR-referenced interest rate swap and the corresponding update of the hedge designation. Relief applied The Group has applied the following Phase 1 reliefs that were introduced by the amendments made to SFRS(I) 9 Financial Instruments: • When considering the ‘highly probable’ requirement, the Group has assumed that the variable interest rate on which the Group’s hedged debt is based does not change as a result of IBOR reform; • In assessing whether the hedge is expected to be highly effective on a forward-looking basis, the Group has assumed that the variable interest rate on which the cash flows of the hedged debt and the interest rate swap that hedges it are based is not altered by the IBOR reform; and • The Group has not recycled the cash flow hedge reserve relating to the period after the reforms are expected to take effect. Assumptions made In calculating the change in fair value attributable to the hedged risk of floating-rate debt, the Group has made the following assumptions that no changes to the terms of the floating rate debt are anticipated to reflect its current expectations. Phase 2 of the amendments requires that, for financial instruments measured using amortised cost measurement, changes to the basis for determining the contractual cash flows required by IBOR reform are reflected by adjusting their effective interest rate. No immediate gain or loss is recognised. A similar practical expedient exists for lease liabilities. These expedients are only applicable to changes that are required by IBOR reform, which is the case if, and only if, the change is necessary as a direct consequence of IBOR reform and the new basis for determining the contractual cash flows is economically equivalent to the previous basis immediately preceding the change. For lease liabilities where there is a change to the basis for determining the contractual cash flows, as a practical expedient, the lease liability is remeasured by discounting the revised lease payments using a discount rate that reflects the change in the interest rate where the change is required by IBOR reform. If lease modifications are made in addition to those required by IBOR reform, the Group applies the relevant SFRS(I) 16 requirements to account for the entire lease modification, including those changes required by IBOR reform. 212 ST ENGINEERING | ANNUAL REPORT 2024
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