CITY DEVELOPMENTS LIMITED ANNUAL REPORT 2021 FINANCIALS 228 229 NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2021 YEAR ENDED 31 DECEMBER 2021 41 FINANCIAL INSTRUMENTS (CONT’D) (iii) Market risk (cont’d) Interest rate risk (cont’d) Managing interest rate benchmark reform and associated risks Overview A fundamental reform of major interest rate benchmarks is being undertaken globally, including the replacement of some interbank offered rates (IBORs) with alternative nearly risk-free rates (referred to as ‘interest rate benchmark reform’). The Group has exposures to IBORs on its financial instruments that will be replaced or reformed as part of these market-wide initiatives. The Group’s main IBOR exposure at 31 December 2021 was indexed to USD LIBOR and SGD SOR. These benchmark rates will lose representativeness or discontinue and be replaced with alternative interest rates benchmarks in US and Singapore with effect from 1 July 2023. Management monitors and manages the Group’s transition to alternative rates. Management evaluates the extent to which contracts reference IBOR cash flows, whether such contracts will need to be amended as a result of interest rate benchmark reform and how to manage communication about interest rate benchmark reform with counterparties. Non-derivative financial liabilities The Group’s IBOR exposures to non-derivative financial liabilities as at 31 December 2021 were secured and unsecured borrowings indexed to USD LIBOR and SGD SOR. The Group is in the process of communicating with counterparties to progressively transition non-derivative financial liabilities which are indexed to the affected interest rate benchmarks to alternative risk-free rates. Derivatives The Group holds interest rate swaps and cross currency swaps for risk management purposes. The interest rate swap and cross currency swaps have floating legs that are indexed to USD LIBOR and SGD SOR. The Group’s derivative instruments are governed by contracts based on the International Swaps and Derivatives Association (ISDA)’s master agreements. The Group is in the process of communicating with counterparties to progressively transition derivative instruments which are indexed to the affected interest rate benchmarks to alternative riskfree rates. Hedge accounting The Group has evaluated the extent to which its cash flow hedging relationships are subject to uncertainty driven by interest rate benchmark reform as at 31 December 2021. The Group’s hedged items and hedging instruments continue to be indexed to IBOR benchmark rates which are USD LIBOR. These benchmark rates are quoted each day and the IBOR cash flows are exchanged with its counterparties as usual. 41 FINANCIAL INSTRUMENTS (CONT’D) (iii) Market risk (cont’d) Interest rate risk (cont’d) Managing interest rate benchmark reform and associated risks (cont’d) Hedge accounting (cont’d) The Group’s USD LIBOR cash flow hedging relationships extend beyond the anticipated cessation dates of the respective rates. The Group continues to apply the amendments to SFRS(I) 9 issued in December 2020 (Phase 1) to those hedging relationships directly affected by interest rate benchmark reform. The Group is in the process of communicating with counterparties on all indexed exposures and the relevant hedging instruments and hedged items have not been amended to transition from USD LIBOR. Hedging relationships impacted by interest rate benchmark reform may experience ineffectiveness attributable to market participants’ expectations of when and how the shift from the existing IBOR benchmark rate to an alternative benchmark interest rate will occur for the relevant hedged items and hedging instruments. This transition may also occur at different times for the hedged item and hedging instrument, which may lead to hedge ineffectiveness. The Group has measured its hedging instruments indexed to USD LIBOR using available quoted market rates for USD LIBOR-based instruments of the same tenor and similar maturity and has measured the cumulative change in the present value of hedged cash flows attributable to changes in USD LIBOR on a similar basis.
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