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 March 31, 2021 amounted to SEK 8,800 million (8,650 at year-end). 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 and in commercial paper SEK 1,600 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 1.9 years (1.8 at year-end), the average capital tie-up period was 2.6 years (2.6 at year-end), and the average annual equivalent rate of interest was 1.2 per cent (1.3 at year-end) including and 1.1 per cent (1.1 at year-end) excluding costs for unutilized loan commitments. Interest-bearing net debt was SEK 7,875 million (7,866 at year-end). In addition, lease liabilities as accounted for under IFRS 16 totalled SEK 722 million (720 at year-end) and decided, unpaid dividends of SEK 506 million (-); total net debt was SEK 9,103 million (8,586 at year-end). In addition to outstanding loans, there are unutilized loan commitments amounting to SEK 3,500 million.
To achieve the desired interest payment structure, borrowing takes place at both a fixed and variable rate of interest. Of the total borrowings, SEK 5,300 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.
Capital tie-up structure, SEK m, March 31, 2021
|Maturity, year||Credit agreement||Bank loans
|1 - 2||2,300||500||1,800||2,300||26|
|2 - 3||3,000||500||1,000||1,500||17|
|3 - 4||3,000||-||2,000||2,000||23|
|4 - 5||500||-||500||500
Fixed interest structure, March 31, 2021
|Maturity, year||Credit amount, SEK m||AER, % 1) 2)||Proportion, %|
|1 - 2||1,800||1.4||20|
|2 - 3||1,000||1.3||11|
|3 - 4||2,000||1.2||23|
|4 - 5||500||1.2||6|
1) The credit margins in the table are allocated to the period in which the credit is reported.
2) The average effective rate excluding cost for unutilized loan commitments was 1.1 per cent.
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.