Cemex 2009 Annual Report Download - page 66

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VII. Derivative instruments over perpetual debentures
On July 15, 2009, in connection with the derivative financial instruments associated with CEMEX’s perpetual debentures (note 17D), by means of which
the Company changed the risk profile of the interest rates and the currencies of the debentures from the U.S. dollar and the euro to the yen; and in order
to eliminate CEMEX’s exposure to the yen and the yen interest rate, CEMEX concluded the settlement of its yen cross currency swap derivatives, as well
as the forward contracts for US$196 as of December 2008, negotiated to eliminate the variability of cash flows in yen to be incurred through the CCS until
2010, in which CEMEX received cash flows in yen and paid U.S. dollars. As a result, a total amount of approximately US$94 was invested with trustees for
the benefit of the debenture holders. This amount will be used to pay CEMEX’s future coupons on the perpetual debentures. As a result of this settlement,
during 2009, CEMEX recognized a loss from changes in the fair value of the instruments of approximately US$162 ($2,203). As of December 31, 2009, the
balance of the investment placed in the trusts amounted to approximately US$95.
As of December 31, 2008, there were CCS associated with perpetual debentures for approximately US$3,020 ($41,495), through which CEMEX changed the
risk profile associated with the interest rate and the foreign exchange rate from the U.S. dollar and the euro to the yen, as indicated in the table below:
2008
Notional Fair Effective
(U.S. dollars millions) amount value rate Maturity CEMEX receives CEMEX pays
C-10 € 730 to ¥119,085 1,020 101 4.1% June 2017 Euro 6.3% ¥ LIBOR * 3.1037
C-8 US$750 to ¥90,193 750 38 4.1% December 2014 Dollar 6.6% ¥ LIBOR * 3.5524
C-5 US$350 to ¥40,905 350 16 4.1% December 2011 Dollar 6.2% ¥ LIBOR * 4.3531
C-10 US$900 to ¥105,115 900 111 4.1% December 2016 Dollar 6.7% ¥ LIBOR * 3.3878
3,020 266
* ¥ LIBOR represents the interest rate for transactions denominated in Japanese yen in international markets.
The CCS included an extinguishable swap, which provided that if the relevant perpetual debentures were extinguished for stated conditions but before the
maturity of the CCS, such CCS would be automatically extinguished, with no amounts payable by the swap counterparties. Changes in fair value of all the
derivative instruments associated with the perpetual debentures were recognized in the income statement for the period.
13D) Inactive derivative financial instruments
As explained in note 13B, in October 2008, CEMEX entered into new derivative instruments representing the opposite position to the exposure resulting
from fluctuations of the economic variables included in the original derivative instruments. In April 2009, all inactive positions were settled. As of
December 31, 2008, the balance of deposits in margin accounts of US$198 ($2,720) related to inactive positions, were offset within CEMEX’s liabilities with
the counterparties. As of December 31, 2008, inactive derivative financial instruments were as follows:
2008
Notional
(U.S. dollars millions) amount* Fair value
Short-term CCS original derivative position 1 US$ 460 (48)
Short-term CCS opposite derivative position 460 18
Long-term CCS original derivative position 2 1,299 (257)
Long-term CCS opposite derivative position 1,299 58
(229)
Deposit in margin accounts 126
(103)
Short-term foreign exchange forward contracts original position 3 2,616 (599)
Short-term foreign exchange forward contracts opposite position 2,616 270
Long-term foreign exchange forward contracts original position 4 110 (30)
Long-term foreign exchange forward contracts opposite position 110 15
(344)
Deposit in margin accounts 72
(272)
CCS related to original debt position 5 900 2
Derivative contracts related to opposite debt position 900 (12)
(10)
US$ (385)
* Notional amounts of the original derivative positions and the opposite derivative positions were not aggregated, considering that the effect of one instrument was
proportionally inverse to the effect of the other instrument, and therefore, eliminated.
1 The original derivative position refers to short-term CCS that exchanged $4,938 for US$460, receiving an average rate of 9.0% in Mexican pesos and paying a rate of 2.3%
in dollars, whose last maturity was scheduled in May 2009.
2 The original derivative position refers to long-term CCS that exchanged $628 UDIs and $11,450 for US$1,299, receiving an average rate of 4.0% in UDIs and 8.9% in pesos,
and receiving a rate of 1.8% in dollars, whose last maturity was scheduled in November 2017.
3 The original derivative position refers to forward contracts with a notional amount of US$1,759 of peso/euro and US$857 of peso/dollar contracts, whose last maturity was
scheduled in September 2009 and related to hedges of some foreign investments.
4 The original derivative position refers to forward contracts with a notional amount of US$110 of peso/euro, whose last maturity was scheduled in January 2010 and related
to hedges of some foreign investments.
5 The original derivative position refers to CCS with a scheduled maturity in June 2011, which exchanged U.S. dollars for Japanese yen, receiving a rate in U.S. dollars of
2.81% and paying a rate in Japanese yen of 1.01%.