284 NOTES TO THE FINANCIAL STATEMENTS (CONT’D) For the financial year ended 31 January 2023 YINSON HOLDINGS BERHAD | INTEGRATED ANNUAL REPORT 2023 41. 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 2023 and 2022, 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 Group’s variable rate borrowings of RM8,580 million (2022: RM7,756 million) are 5 to 12 years (2022: 8 to 12 years) project financing term loans of RM6,209 million (2022: RM3,705 million) whose interest rates are based on 3-month USD LIBOR. To hedge the variability in cash flows of these term loans, the Group has entered into 4 to 12 years (2022: 7 to 12 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 The above-mentioned interest rate swaps currently in place cover approximately 88% (2022: 100%) 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 6.39% (2022: 3.89% to 5.55%). 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: 2023 SOFR RM million LIBOR RM million Total RM million Interest rate swaps Carrying amount (current and non-current asset) 91 278 369 Notional amount 1,991 3,462 5,453 Hedge ratio of project financing loans 72% 100% 88% Change in fair value of outstanding hedging instruments since 1 February 91 304 395 Change in value of hedged item used to determine hedge effectiveness 91 304 395 Weighted average hedged rate for the year 6.39% 3.89% to 5.55% 3.89% to 6.39%
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