Hufvudstaden’s finance function is a Group function charged with central responsibility for financing and liquidity planning. The work is governed by the Finance policy decided by the Board of Directors, which aims to secure the Group’s financing requirements at the lowest possible cost and risk.
Within the finance function, there are instructions, systems and rules of procedure to achieve good internal control and follow-up of operations.
Major financing solutions and derivative transactions should be approved by the Chairman of the Board and the Board is informed at each Board meeting about financial issues.
Hufvudstaden's borrowing as at June 30, 2019 amounted to SEK 7,850 million (7,350 at the turn of the year). Hufvudstaden has an MTN programme totalling SEK 8,000 million, and a commercial paper programme totalling SEK 3,000 million. The outstanding amount in bonds was SEK 5,200 million an in commercial paper SEK 1,650 million.
Hufvudstaden ensures that at any point in time there are unutilized loan assurances to cover all outstanding commercial paper. The average fixed interest period was 2.4 years (2.6 at the turn of the year), the average capital tie-up period was 3.5 years (3.9 at the turn of the year), and the average annual equivalent rate of interest was 1.2 per cent (1.2 at the turn of the year). Net interest-bearing debt was SEK 7,760 million (6,279 at the turn of the year). The increase can be attributed to the additional leasing liability according to IFRS 16 and the payment of a dividend. To achieve the desired interest payment structure, borrowing takes place at both a fixed and variable rate of interest and use is made of interest derivatives. The underlying credit of SEK 100 million (450 at the turn of the year) is hedged via interest derivatives. Of the total borrowing, SEK 5,200 million carries a fixed rate of interest.
The fair value of all interest derivatives as at June 30, 2019 was SEK -0.4 million (-3.7 at the turn of the year). The negative figure can be explained by a general fall in market interest rates since the derivative contracts were signed. Derivatives are valued at fair value in the Balance Sheet. All derivatives are classified as level 2 according to IFRS 13. There is no set-off of financial assets and liabilities, and there are no agreements that permit netting. Other financial assets and liabilities are reported at the amortized cost, which in all material respects concurs with the fair value.
Capital tie-up structure, SEK m, June 30, 2019
|Maturity, year||Credit agreement||Bank loans
|1 - 2||1,000||500||500||-||1,000||13|
|2 - 3||2,400||500||900||650||2,050||26|
|3 - 4||2,300||-||2,300||-||2,300||29|
|4 - 5||1,000||-||1,000||-||1,000||13|
|5 - 6||1,500||-||500||1,000||1,550||19|
1) Capital tie-up for commercial paper loans has been calculated according to the underlying loan assurances.
Fixed interest structure, SEK m, June 30, 2019
|Maturity, year||Credit amount||AER, %1||Proportion, %|
|1 - 2||500||1.8||6|
|2 - 3||900||1.3||12|
|3 - 4||2,300||1.4||29|
|4 - 5||1,000||1.4||13|
|5 - 6||500||1.3||6|
1) The credit margins in the table are allocated to the period in which the credit is reported.
Hufvudstaden’s aim is to use surplus liquidity to amortize existing loans. Surplus liquidity not used for amortization may only be invested in instruments with high liquidity and low risk.
Financing risks and interest risks
Hufvudstaden is mainly exposed to financing risks and interest risks. The Group endeavours to have a credit portfolio with a diverse credit renewal structure that facilitates possible amortizations. No loans are raised in foreign currency and consequently the Group is not exposed to a currency exchange risk. Borrowing normally takes place with short fixed interest periods and interest swaps are used to achieve the desired fixed interest structure.
Derivatives are only used for the purposes of minimizing the risk and should be linked to an underlying exposure. At present, the Group has derivatives reported in the category financial assets and liabilities valued at fair value in profit or loss. Hedge accounting is not applied.
The Company has satisfactory margins with regard to the lenders' restrictions (covenants) in the loan agreements.