Derivative instruments :
The Company uses derivative financial instruments such as forward exchange contracts to hedge its risks associated with foreign currency fluctuations. Accounting policy for forward exchange contracts is given in note 2.8.4.
The foreign exchange contracts other than those covered under AS-l1, enter,ed for non-speculative purposes, including the underlying hedged items, are valued on the basis of a fair value on marked-to-market basis and any loss on valuation is recognised in the Profit and Loss account, on a port-folio basis. Any gain arising on this valuation is not recognised by the Company in line with the principle of prudence as enunciated in Accounting Standard 1 – ‘Disclosure of Accounting Policies’. Any subsequent changes in fair values, occurring after the balance sheet date are accounted for in the period in which they arise.
Finolex Cables Ltd. – (31-3-2008)
From Notes to Accounts
10A. Quantitative information of derivative instruments outstanding as at the balance sheet date:
Not reproduced.
B. The Company has entered into derivative transactions with an objective to hedge the financial risks associated with its business viz. foreign exchange and interest rate.
C. The Company has not hedged the following foreign currency exposures:
i) Borrowings grouped under secured loans equivalent to Rs.999.250 Million (Previous year Rs.1,476.875 million) and under unsecured loans equivalent to Rs.739.657 million. (Previous year Rs.652.678 million).
ii) Creditors for imports equivalent to Rs.39.393 million (Previous year 45,961 million).
iii) Receivables equivalent to RS.171.991million. (Previous year Rs.195.630 million).
d) Loss on derivative/forex transactions in-cludes Rs.92.000 million loss on certain outstanding derivatives at the balance sheet date assessed by the management based on the principle of prudence. In respect of other contracts, since they are in the nature of ef-fective hedge, profit/loss, if any, has not been ascertained separately.
ITC Ltd. – (31-3-2008)
From Notes to Accounts:
Derivative Instruments:
The company uses Forward Exchange Contracts and Currency Options to hedge its exposures in foreign currency related to firm commitments and highly probable forecasted transactions. The information on Derivative Instruments is as follows:
a) Derivative Instrument outstanding as at year end:
Not reproduced.
b) Foreign exchange currency exposures that have not been hedged by a derivative instrument or otherwise as at year end:
Not reproduced.
c) Consequent to the announcement issued by the Institute of Chartered Accountants of India in March 2008 on Accounting for Derivatives, the Company has marked to market the outstanding derivative contracts as at 31st March, 2008 and accordingly, unrealised gains of Rs.9.05 crores (net of taxes) have been ignored. As a result, profit after tax for the year and reserves are lower by Rs.9.05 crores.
Housing Development Finance Corporation Ltd. – (31-3-2008)
From Notes to Accounts:
ii) As on March 31, 2008, the Corporation has foreign currency borrowings (excluding FCCB) of USD 1,079.58 million equivalent (Previous year USD 1,068048 million). The Corporation has undertaken principal-only swaps, currency options and forward contracts on a notional amount of USD 808 million equivalent (Previous year USD 777 million) to hedge the foreign currency risk. Further, interest rate swaps on a notional amount of USD 230 million equivalent (Previous year USD 391 million) are outstanding, which have been undertaken to hedge the interest rate risk on the foreign currency borrowings. As on March 31,2008, the Corporation’s net foreign currency exposure on borrowings net of risk management arrangements is USD 447.13 million (Previous year USD 100.17 million).
As a part of asset liability management and on account of the increasing response to the Corporation’s Adjustable Rate Home Loan product as well as to reduce the overall cost of borrowings, the Corporation has entered into interest rate swaps wherein it has converted its fixed-rate rupee liabilities of a notional amount of Rs.12,265 crores (Pre-vious year Rs.7,265 crores) as on March 31,2008 for varying maturities into floating rate liabilities linked to various benchmarks. In addition, the Corporation has entered into cross-currency swaps of a notional amount of USD 652 million equivalent (Previous year USD 643 million), wherein it has converted its rupee liabilities into foreign currency liabilities and the interest rate is linked to the benchmarks of respective currencies.
iii) Gains/losses arising out of foreign exchange fluctuations in respect of foreign currency borrowings, net of risk management arrangements, are to the account of the Corporation. Wherever the Corporation has entered into a forward contract or an instrument, that is in substance, a forward exchange contract, the difference between the forward rate and the exchange rate on the date of the transaction is recognised as income or expense over the life of the contract. The amount of exchange difference in respect of such contracts to be recognised as expense in the Profit and Loss account over subsequent accounting periods is Rs.97.78 crores (Previous year Rs. 45.54 crores).
Other monetary assets and liabilities in foreign currencies are revalued at the rates of exchange prevailing at the year end. The reduced liability, net of risk management arrangements, of Rs.8.67 crores (Previous year Rso4.31cores [net of loss on mark to market of derivatives Rs.103.04 crores]) arising upon revaluation at the year end (based on the prevailing exchange rate) has been credited to the Provision for Contingencies account.
iv) Cross-currency swaps and other derivatives have been marked to market at the year end. The net gain of Rs.293.59 crores on such mark to market of derivatives is included under Advance Payments (Schedule No.7) and not recognised in the Profit and Loss account in view of the recent announcement by the Institute of Chartered Accountants of India (ICAI), which requires the principle of prudence to be followed in accounting for mark-to-market gains/losses on derivatives.
SRF Ltd. – (31-3-2008)
From Significant Accounting Policies
a) Transactions in foreign currencies are recorded at the rate prevalent on the date of transactions.
b) All foreign currency liabilities and monetary assets are stated at the exchange rate prevailing as at the date of balance sheet and the difference taken to Profit and Loss account as exchange fluctuation loss or gain.
c) Pursuant to ICAI announcement for adoption of AS-30 Financial Instruments: Recognition and Measurement, the Company has accounted for the hedge accounting of all the hedging instruments including derivatives in accordance with paragraph 99 and 106 of the said standard, affecting either the Profit and Loss account or hedging reserve (equity segment) as the case may be. The debit balance, if any, in the hedging reserve is being shown as a deduction from free reserves.
d) The Company discloses the open and hedged foreign exchange exposure as note to the accounts.
From Notes to Accounts:
SRF has entered into long-term contracts for the transfer / sale of Carbon Emission Reductions (CER) with reputable global buyers. The cash flow from these sales forms the mainstay of SRF’s multi-year capital expansion plan, and as such these cash flows need to be both stable and secure. To ensure stability of revenues in foreign currency from the transfer / sale of CERs, the Company has entered into forward contracts with the banks to part sell Euros to be earned out of future CER sales.
The details of the forex exposure of the Company as on 31 March, 2008 are as under:
Details not reproduced.
The Company has not entered into any hedging transactions in the nature of speculation in 2007-08 (Previous year Nil).
Tube Investments of India Ltd. (31-3-2008)
From Significant Accounting Policies:
The Company uses forward contracts to hedge its risks associated with foreign currency fluctuations relating to certain firm commitments and forecasted transactions. The Company designates these as cash flow hedges.
The use of forward contracts is governed by the Company’s policies on the use of such financial derivatives consistent with the Company’s risk management strategy. The Company does not use derivative financial instruments for speculative purposes.
Forward contract derivatives instruments are initially measured at fair value, and are remeasured at subsequent reporting dates. Changes in the fair value of these derivatives that are designated and effective as hedges of future cash flows are recognised directly in ‘Hedge Reserve Account’ under shareholders’ funds and the ineffective portion is recognised immediately in the Profit and Loss account.
Changes in the fair value of derivative financial instruments that do not qualify for hedge accounting are recognised in the Profit and Loss account as they arise.
Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated, or ( exercised, or no longer qualifies for hedge account-ing. At that time, for forecasted transactions, any cumulative gain or loss on the hedging instrument recognised under shareholders’ funds is retained there until the forecasted transaction occurs. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised under shareholders’ funds is transferred to the Profit and Loss account for the year.
From Notes to Accounts:
Pursuant to the announcement of the Institute of Chartered Accountants of India (ICAI) in respect of ‘Accounting for Derivatives’, the Company has opted to follow the recognition and measurement principles relating to derivatives as specified in AS-30 ‘Financial Instruments, Recognition and Measurement’, issued by the ICAI, from the year ended 31st March,2008.
Consequently, as of 31st March 2008, the Company has recognised mark-to-market (MTM) losses of Rs.3.03 cr. relating to forward contracts and other derivatives entered into to hedge the foreign currency risk of highly probable forecast transactions that are designated as.effective cash flow hedges, in the Hedge Reserve Account as part of the shareholders funds.
The MTM net loss on undesignated/ineffective forward contracts amounting to Rs.0.65 cr. has been recognised in the Profit & Loss account.
