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| d. |
Estimation of fair values
As discussed in Note 2, effective January 1, 2009, the Group adopted FRS 107 Financial Instruments: Disclosures. FRS 107 establishes a fair value hierarchy that prioritises the inputs used to measure fair value. The three levels of the fair value input hierarchy defined by FRS 107 are as follows:
| • |
Level 1 – Fair values are measured based on quoted prices (unadjusted) from active markets for identical
financial instruments. |
| • |
Level 2 – Fair values are measured using inputs, other than those used for Level 1, that are observable for the financial instruments either directly (prices) or indirectly (derived from prices). |
| • |
Level 3 – Fair values are measured using inputs which are not based on observable market data (unobservable input). |
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. |
Fair value hierarchy
The following table sets forth by level within the fair value hierarchy our financial assets and liabilities that were
accounted for fair value on a recurring basis as of December 31, 2009. These financial assets and liabilities are
classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Our
assessment of the significance of a particular input to the fair value measurement requires judgement, and may
affect the valuation of assets and liabilities and their placement within the fair value hierarchy levels. |
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Fair value measurement at December 31, 2009 using: |
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Level 1 |
Level 2 |
Level 3 |
Total |
| |
S$’000 |
S$’000 |
S$’000 |
S$’000 |
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Group |
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At December 31, 2009 |
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|
|
Available-for-sale financial assets |
163,997 |
6,542 |
— |
170,539 |
Financial assets at fair value through profit or loss |
35 |
— |
— |
35 |
Derivative financial assets |
— |
48,869 |
— |
48,869 |
| |
164,032 |
55,411 |
— |
219,443 |
Derivative financial liabilities |
— |
(60,517) |
— |
(60,517) |
|
164,032 |
(5,106) |
— |
158,926 |
|
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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, 2009 (2008: net cash position). |
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Group
|
Group |
|
2009 |
2008 |
|
S$’000 |
S$’000 |
|
|
|
Guarantees given to banks to secure banking facilities provided to: |
|
|
– Associates and joint ventures |
31,450 |
— |
– Others |
7,238 |
7,441 |
Performance guarantees granted for contracts awarded to the Group |
34,037 |
238,596 |
|
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| a. |
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. |
| |
|
| b. |
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 in the
subsidiary’s books for the claim pending resolution of the dispute. |
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| |
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$1,640 million (2008: S$1,239 million), of which S$200 million was drawn down as at
balance sheet date. The periods in which the financial guarantees expire are as follows: |
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| |
|
Company |
|
2009 |
2008 |
|
S$’000 |
S$’000 |
|
|
|
Less than 1 year |
1,639,622 |
1,239,063 |
|
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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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