Note 10 Financial risk management
The object of Statnett SF's financial policy is to ensure that the enterprise achieves the necessary financing of planned operational and investment programmes at the lowest possible cost, risk included. Statnett SF's financial policy also comprises aims and frameworks for minimising the enterprise's credit, interest rate and foreign exchange risks. Statnett SF uses financial derivatives to manage the financial risk.
The enterprise has liabilities and equity as specific in the balance sheet. The loan agreements do not impose any capital requirements on the enterprise which are expected to restrict the capital structure of the enterprise. Nor are there any explicit equity requirements other than those stipulated in applicable laws and regulations. The main objective of Statnett's capital management structure is to ensure that the enterprise has a sound financial position, which enables the enterprise to operate and develop the main grid in a socio-economically profitable manner in line with plans and the owner's expectations. It is a priority with the Statnett Board of Directors to maintain a robust A rating or better. In September 2013, Statnett requested more equity from the owner and a lower dividend share. The request was granted through the 2014 fiscal budget. The owner has changed the dividend policy for the fiscal years 2013-2016 in line with the request for equity to zero dividend for 2013, and subsequently to 25 per cent of the Group's net profit for the year, adjusted for the changed balance for higher/lower revenues after tax. Moreover, the capital structure is managed by raising and paying off short-term and long-term debt, as well as through changes in liquid assets. There have been no changes to capital management guidelines or objectives in 2013.
Overview of capital included in capital structure management:
Statnett SF aims to be able to carry out 12 months of operations, investments and refinancing without raising any new debt. This will make Statnett less vulnerable during periods of low access to capital in the financial markets and periods with unfavourable borrowing conditions.
Statnett reduces liquidity risk related to maturity of financial liabilities by having an evenly distributed maturity structure, access to several sources of financing in Norway and abroad, as well as sufficient liquidity to cover scheduled operations, investment and financing needs without incurring any new debt within a time horizon of 12 months. The liquidity comprises of existing cash and cash equivalents (bank/time deposits, certificates and bonds) and a credit facility of NOK 6.5 billion running until January 2018. Statnett has also entered into a long-term loan agreement with the European Investment Bank (EIB) for a maximum borrowing of EUR 200 million. The loan can be drawn in several tranches. As of 27 March 2014, the loan from EIB remains undrawn and the credit facility had not been utilised. Liquidity is followed up continuously with weekly reporting.
Statnett SF has a high credit rating. Standard & Poor's og Moody's Investor Service have given Statnett SF credit ratings for long-term borrowings of A+ and A2 respectively. The high credit ratings provides Statnett SF good borrowing opportunities.
The table below shows all gross cash flows related to financial liabilities. The cash flows have not been discounted and are based on interest rates and exchange rates at 31 Dec. 2012.
Statnett SF is exposed to credit risk through the investment of surplus liquidity with issuers of securities and through the use of various interest rate and currency derivatives. In order to limit this risk, Statnett has set credit limits based on the creditworthiness of counterparties and the maximum exposure for each counterparty. Creditworthiness is assessed at least once a year, and the counterparty risk is continuously monitored to ensure that Statnett's exposure does not exceed the set credit limits and complies with internal rules.
Foreign exchange risk
Foreign exchange risk is the risk of fluctuations in foreign exchange rates that will result in changes in Statnett's income statement and balance sheet. To minimise foreign exchange risk, all foreign currency loans are converted into Norwegian Kroner (NOK) using cross currency swaps. The liabilities undertaken by Statnett in foreign currencies in connection with investment projects are mainly hedged using currency swaps. Other currency exposure as at 31 Des 2013 that had not been swapped or reserved to future payments or bank deposits in foreign currency totalled NOK 389 million for the parent company and for the Group. Foreign equity funds and shares totalled NOK 29 million for the Group.
The table shows the sensitivity of the company to potential changes in the exchange rate of the Norwegian Krone, if all other factors remain constant. The calculation is based on an identical change in relation to all relevant currencies. The effect on the result is due to a change in the value of monetary items that are not fully hedged. Other monetary items and all foreign currency debt are hedged, and the change in value is matched by a change in the value of the derivative.
Interest rate risk
The Group is exposed to interest rate risk through its loan portfolio, liquid assets and financial hedges. Statnett SF is also exposed to interest rate levels on which the revenue cap for the grid operations is based (the NVE interest rate).
In order to reduce the interest rate risk and minimise fluctuations in the result, the interest rate on Statnett's debt must correlate to the extent possible with the NVE interest rate. The NVE interest rate is calculated on the basis of daily averages of the five-year swap interest rate. In addition, the NVE interest rate comprises some fixed interest rates with the addition of inflation and a surcharge for credit risk. To achieve the desired fixed-interest period on the enterprise's debt, interest rate swap agreements linked to the underlying debt are used.
Interest rate sensitivity
The following table shows the sensitivity of the parent company and the Group to potential changes the in interest rate. The calculation takes into account all interest-bearing instruments and associated interest rate derivatives. It shows the effect on the result of a change in the interest rate levels as at 31 December 2013.
It has been assumed that a change of one percentage point in the short-term interest rate level will result in a change in the Group's average borrowing rate of approx.0.37 percentage points over a six-month period. Net borrowing costs will then change approx. NOK136 million, annualy.
Average effective interest rate
The table below shows the average effective interest rate for the individual financial instruments for the full years 2012 and 2013.
Statnett has had lower interest yield on deposits as a result of lower short-term interest rates.