Hufvudstaden’s finance function is a Group function charged with central responsibility for financing and liquidity planning. The work is governed by the Finance policy decided by the Board of Directors, which aims to secure the Group’s financing requirements at the lowest possible cost and risk.
Within the finance function, there are instructions, systems and rules of procedure to achieve good internal control and follow-up of operations.
Major financing solutions and derivative transactions should be approved by the Chairman of the Board and the Board is informed at each Board meeting about financial issues.
Hufvudstaden's financing requirements are met through a number of the major Nordic banks and the capital market. Total borrowing as at June 30, 2020 amounted to SEK 7,900 million (8,350 at the turn of the year). Hufvudstaden has an MTN programme totalling SEK 8,000 million, and a commercial paper programme totalling SEK 3,000 million. The outstanding amount in bonds was SEK 6,200 million an in commercial paper SEK 700 million.
Hufvudstaden ensures that at any point in time there are unutilized loan assurances to cover all outstanding commercial paper. The average fixed interest period was 2.3 years (2.6 at the turn of the year), the average capital tie-up period was 2.8 years (3.3 at the turn of the year), and the average annual equivalent rate of interest was 1.3 per cent (1.2 at the turn of the year). Interest-bearing net debt was SEK 8,186 million (7,404 at the turn of the year).
To achieve the desired interest payment structure, borrowing takes place at both a fixed and variable rate of interest. Of the total borrowings, SEK 6,200 million carries a fixed rate of interest. Financial assets and liabilities are reported at the accrued acquisition cost, which in all material respects concurs with the fair value. There is no set-off of financial assets and liabilities, and there are no agreements the permit netting.
Capital tie-up structure, SEK m, June 30, 2020
|Maturity, year||Credit agreement||Bank loans
|1 - 2||2,400||500||900||-||1,400||18|
|2 - 3||2,300||-||2,300||-||2,300||29|
|3 - 4||2,000||-||1,000||-||1,000||13|
|4 - 5||2,500||-||1,500||700||2,2002)||28|
1) Capital tie-up for commercial paper loans has been calculated according to the underlying loan assurances.
2) SEK 700 million is reserved as backup for outstanding commercial paper.
Fixed interest structure, SEK m, June 30, 2020
|Maturity, year||Credit amount||AER, %1||Proportion, %|
|1 - 2||900||1.3||11|
|2 - 3||2,300||1.4||29|
|3 - 4||1,000||1.4||13|
|4 - 5||1,500||1.1||19|
1) The credit margins in the table are allocated to the period in which the credit is reported.
Hufvudstaden’s aim is to use surplus liquidity to amortize existing loans. Surplus liquidity not used for amortization may only be invested in instruments with high liquidity and low risk.
Financing risks and interest risks
Hufvudstaden is mainly exposed to financing risks and interest risks. The Group endeavours to have a credit portfolio with a diverse credit renewal structure that facilitates possible amortizations. No loans are raised in foreign currency and consequently the Group is not exposed to a currency exchange risk. Borrowing normally takes place with short fixed interest periods and interest swaps are used to achieve the desired fixed interest structure.
Derivatives are only used for the purposes of minimizing the risk and should be linked to an underlying exposure. At present, the Group has derivatives reported in the category financial assets and liabilities valued at fair value in profit or loss. Hedge accounting is not applied.
The Company has satisfactory margins with regard to the lenders' restrictions (covenants) in the loan agreements.