Yinson Annual Report 2021

293 ANNUAL REPORT 2021 NOTES TO THE FINANCIAL STATEMENTS (CONT’D) For the financial year ended 31 January 2021 42. Financial risk management objectives and policies (continued) (a) Market risk (continued) (i) Interest rate risk (continued) The Group manages its interest rate risk by having a balanced portfolio of fixed and floating rate loans and borrowings. The Group enters into interest rate swaps, in which it agrees to exchange, at specified intervals, the difference between fixed and floating interest rate amounts calculated by reference to an agreed-upon notional amount. For the financial years ended 31 January 2021 and 2020, the Group's borrowings at floating rates were primarily denominated in USD. Except for the USD LIBOR floating rate debt as set out in Note 32, the Group is not exposed to interbank offered rates (IBORs) that will be affected by the IBOR reforms. Included in the variable rate borrowings are 9 to 12 years (2020: 7 to 9 years) floating rate debt of RM3,985 million (2020: RM3,374 million) whose interest rate is based on 3-month USD LIBOR. To hedge the variability in cash flows of these loans, the Group has entered into 8 to 12 years (2020: 7 years) interest rate swaps with key terms (principal amount, payment dates, repricing dates, currency) that match those of the debt on which it pays a fixed rate and receives a variable rate. Instruments used by the Group Interest rate swaps currently in place cover approximately 100% (2020: 80%) of the Group's outstanding 3-month USD LIBOR variable rate project financing loans. These loans bear variable rates based on USD LIBOR plus a certain margin, however the interest rates are fixed based on the fixed interest rates of the swaps which range between 3.89% to 5.55% (2020: 5.78% to 6.01%). The swap contracts require settlement of net interest receivable or payable every quarter. The settlement dates coincide with the dates on which interest is payable on the underlying debt. Effects of hedge accounting on the financial position and performance The effects of the above-mentioned interest rate swaps on the Group's financial position and performance are as follows: 2021 2020 RM million RM million Interest rate swaps Carrying amount (current and non-current liability) 225 156 Notional amount - LIBOR based swaps 3,985 3,084 Hedge ratio of project financing loans 100% 80% Change in fair value of outstanding hedging instruments since 1 February 129 133 Change in value of hedged item used to determine hedge effectiveness 129 133 Weighted average hedged rate for the year 3.89% to 5.55% 5.78% to 6.01% The maturity period of interest rate swaps ranges from November 2027 to December 2031 (2020: June 2024 to November 2027). Interest rate sensitivity As an increase/decrease in interest rates by 10 (2020: 10) basis points would not result in a significant increase/ decrease in interest expense for the unhedged variable rate loans of the Group, sensitivity analysis is not disclosed.