264 YINSON HOLDINGS BERHAD ACCOUNTABILITY NOTES TO THE FINANCIAL STATEMENTS (CONT’D) For the financial year ended 31 January 2022 5. Critical accounting estimates and judgements (continued) (i) Critical judgement over interest rate benchmark reform (continued) The Group’s treasury function is managing the Group’s USD LIBOR transition plan. This transition plan may include changes to systems, processes, risk and valuation models, as well as managing related tax and accounting implications. The Group currently anticipates that the areas of greatest change will be amendments to the contractual terms of the Group’s 3-month USD LIBOR-referenced floating-rate debt and associated swaps, and the corresponding update of the hedge designations. Reliefs applied The Group has applied the following Phase 1 reliefs provided by the Amendments to MFRS 139 and MFRS 7 ‘Interest Rate Benchmark Reform’ until the uncertainty arising from IBOR reform no longer being present: • When considering the ‘highly probable’ requirement, the Group has assumed that the USD LIBOR interest rate on which the Group’s hedged borrowings 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 USD LIBOR interest rate on which the cash flows of the hedged borrowings and the interest rate swap that hedges it are based is not altered by IBOR reform. • The Group has not recycled the cash flow hedge reserve for designated hedges that are subject to the IBOR reform. • Hedge accounting is not discontinued when the retrospective hedge effectiveness test for a hedging relationship falls outside the required 80-125% range as a result of the IBOR reform. The Group has applied the following reliefs provided by the Amendments to MFRS 139 and MFRS 7 ‘Interest Rate Benchmark Reform—Phase 2’: • Hedge designation: When the Phase 1 amendments cease to apply, the Group will amend its hedge designation to reflect changes which are required by IBOR reform, but only to make one or more of the following changes: a) designating an alternative benchmark rate (contractually or non-contractually specified) as a hedged risk; b) amending the description of the hedged item, including the description of the designated portion of the cash flows or fair value being hedged; or c) amending the description of the hedging instrument. The Group amends its hedge documentation to reflect this change in designation by the end of the reporting period in which the changes are made. These amendments to the hedge documentation do not require the Group to discontinue its hedge relationships. • Amounts accumulated in the cash flow hedge reserve: When the Group amends its hedge designation as described above, the accumulated amount outstanding in the cash flow hedge reserve is deemed to be based on the alternative benchmark rate. For discontinued hedging relationships, when the interest rate benchmark on which the hedged future cash flows were based has changed as required by IBOR reform, the amount accumulated in the cash flow hedge reserve is also deemed to be based on the alternative benchmark rate for the purpose of assessing whether the hedged future cash flows are still expected to occur. • Retrospective effectiveness test: When the Phase 1 retrospective effectiveness relief ceases to apply, on a hedge-by-hedge basis, the Group could reset to zero the cumulative fair value changes of the hedged item and hedging instrument for the purposes of the 80–125% ‘pass/fail’ hedge effectiveness test. However, this does not affect the amounts of hedge ineffectiveness reported in the profit or loss.
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