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| Home > Financial Statements > Statutory Reports > Notes to the Financial Statements |
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| d. |
Estimation of fair values
Securities
The fair value of financial assets at fair value through profit or loss, and available-for-sale financial assets, is based on quoted market prices (bid price) at the balance sheet date without any deduction for transaction costs. If the market for a quoted financial asset is not active, and for unquoted financial assets, the Group establishes fair value by using valuation techniques.
Derivatives
Forward exchange contracts are either marked to market using listed market prices at the balance sheet date or, if a listed market price is not available, the fair value is estimated by discounting the difference between the contractual forward price and the current spot rate.
The fair value of interest rate swaps, based on current interest rates curves, is the estimated amount that the Group is expected to receive or pay to terminate the swap with the swap counterparties at the balance sheet date.
The fair value of fuel oil swaps contracts is their quoted market price at the balance sheet date, being the present value of the quoted forward fuel oil price.
Contracts for differences are accounted for based on the difference between the contracted price entered into with the counterparty and the reference price. The fair value of contracts for differences cannot be reliably measured as the financial instrument does not have quoted market prices in an active market. The gains and losses for contracts for differences are taken to the income statement upon settlement.
The electricity forward sale with option to buyback contracts is entered into with a single counterparty for a fixed volume and its fair value is determined based on forward sale and forecasted spot purchase prices quoted in the market as at balance sheet date.
Non-derivative financial liabilities
Fair values are calculated based on discounted expected future principal and interest cash flows at the market rate of interest at the reporting date. For finance leases, the market rate of interest is determined by reference to similar lease agreements.
Other financial assets and liabilities
The carrying amounts of financial assets and liabilities with a maturity of less than one year (including trade and other receivables, cash and cash equivalents, and trade and other payables) are assumed to approximate their fair values because of the short period to maturity. All other financial assets and liabilities are discounted to determine their fair values.
Where discounted cash flow techniques are used, estimated future cash flows are based on management’s best estimates and the discount rate is a market-related rate for a similar instrument at the balance sheet date. Where other pricing models are used, inputs are based on market-related data at the balance sheet date. |
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| e. |
Financial instruments not carried at fair value
The aggregate net fair values of recognised financial assets and liabilities which are not carried at fair value in the balance sheet as at December 31 are represented in the following table: |
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2008
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2007
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Carrying amount |
Fair value |
Carrying amount |
Fair value |
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S$’000 |
S$’000 |
S$’000 |
S$’000 |
Group |
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Financial liabilities |
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Medium-term notes |
(149,945) |
(149,945) |
(299,869) |
(297,810) |
Term loans |
(20,000) |
(20,000) |
(32,000) |
(33,620) |
Unrecognised gain |
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— |
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439 |
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Company |
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Financial liabilities |
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Medium-term notes |
— |
— |
(150,000) |
(150,000) |
Unrecognised loss |
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— |
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— |
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The fair value of the medium-term notes is based on their listed market prices. |
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| f. |
Capital management
The Group aims to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development and growth of its businesses, while at the same time maintaining an appropriate dividend policy to reward shareholders. The Group monitors Economic Value Added attributable to shareholders, which the Group defines as net operating profit after tax less capital charge excluding minority interests. Management also monitors the level of dividends to ordinary shareholders.
The Group seeks to maintain a balance between the higher returns that might be possible with higher levels of borrowings and the advantages and security afforded by a sound capital position. The Group records a net cash position as at December 31, 2008 (2007: net gearing ratio of 0.01). |
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Group
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Group |
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2008 |
2007 |
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Note |
S$’000 |
S$’000 |
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Outstanding litigation |
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— |
73,117 |
Guarantees given to banks to secure banking facilities provided to: |
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– Associates and joint ventures |
(a) |
— |
197,209 |
– Others |
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7,441 |
— |
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Performance guarantees granted for contracts awarded to the Group (including guarantees granted on behalf of associates and joint ventures) |
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238,596 |
35,057 |
| a. |
In consideration of a consortium of banks making available to Emirates Sembcorp Water & Power Company P.J.S.C (“ESWPC”) (a private joint stock company incorporated under the laws of the United Arab Emirates and the Emirate of Fujairah) a US$220 million equity bridge loan facility (“EBL”), Sembcorp Utilities Pte Ltd (“SCU”) guarantees the payment of its proportionate 40% share of the sums relating to the EBL by ESWPC to the banks. The aggregate liability of SCU, including outstanding interest, shall not exceed an amount of US$90.6 million.
Additionally, in consideration of the contracting banks entering into interest rate swap hedging agreements relating to the EBL (“EBH”) with ESWPC, SCU guarantees its proportionate 40% share of the amounts falling due on the EBH, payable by ESWPC to the banks. The aggregate liability of SCU shall not exceed an amount of US$6.5
million. The maturity date for these hedging agreements is on February 1, 2009.
At balance sheet date, as the Group has provided the guarantee, the Group has accordingly taken up its share of the net liability of an ESWPC of S$139.6 million (2007: S$49.3 million). |
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| b. |
A Wayleave Agreement was entered into between SembGas and the Government of Singapore with respect to certain pipelines where SembGas would indemnify the Government of Singapore against all claims, actions, demands, proceedings, liabilities, damages, costs and expenses arising out of or in connection with any occurrence during the use, maintenance or operations of these pipelines. No such claim has arisen to date. |
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| c. |
A subsidiary, Sembcorp Air Products (Hyco) Pte Ltd’s (“SembAP”) Synthesis Gas and Hydrogen Plant had an unplanned shutdown from June 26, 2008 to August 4, 2008 which gave rise to a claim by its main customer for termination based on non-supply of synthesis gas and hydrogen during this period. SembAP is disputing the claim on the basis that the shutdown was an event of force majeure and accordingly no provision has been made for the claim pending resolution of the dispute. |
Company
| a. |
The Company has provided guarantees to banks to secure banking facilities provided to a wholly-owned subsidiary, Sembcorp Financial Services Pte Ltd. These financial guarantee contracts are accounted for as insurance contracts.
The principal risk to which the Company is exposed is credit risk in connection with the guarantee contracts it
has issued. The credit risk represents the loss that would be recognised upon a default by the parties to which the guarantees were given on behalf of. To mitigate these risks, management continually monitors the risks and has established processes including performing credit evaluations of the parties it is providing the guarantee on behalf of.
There are no terms and conditions attached to the guarantee contracts that would have a material effect on the amount, timing and uncertainty of the Company’s future cash flows.
Estimates of the Company’s obligation arising from financial guarantee contracts may be affected by future events, which cannot be predicted with any certainty. The assumptions made may well vary from actual experience so that the actual liability may vary considerably from the best estimates. As of balance sheet date, there is no provision made in respect of the obligations.
Intra-group financial guarantees comprise guarantees granted by the Company to banks in respect of banking facilities amounting to S$1,239 million (2007: S$1,265 million), of which S$200 million was drawn down as at balance sheet dates. The periods in which the financial guarantees expire are as follows: |
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Company |
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2008 |
2007 |
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S$’000 |
S$’000 |
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Less than 1 year |
1,239,063 |
1,064,922 |
Between 1 to 5 years |
— |
200,000 |
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1,239,063 |
1,264,922 |
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| b. |
The Company has provided a corporate guarantee to a subsidiary, SembCogen which entered into a long-term contract (“End User Agreement”) with a fellow subsidiary, SembGas to purchase natural gas over the period of 22 years with effect from 1999.
Under the End User Guarantee Agreement, the Company and one of its subsidiaries, Sembcorp Utilities Pte Ltd, issued corporate guarantees in favour of SembGas for 70% and 30% respectively of SembCogen’s obligations under the End User Agreement. |
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