Vodafone 2006 Annual Report Download - page 44

42 Vodafone Group Plc Annual Report 2006
Financial Position and Resources
continued
Committed facilities
The following table summarises the committed bank facilities available to the Group at
31 March 2006:
Committed Bank Facilities Amounts drawn
24 June 2004
$5.9 billion Revolving Credit Facility, No drawings have been made against
maturing 24 June 2009. this facility. The facility supports the
Group’s commercial paper
programmes and may be used for
general corporate purposes including
acquisitions.
24 June 2005
$5.0 billion Revolving Credit Facility, No drawings have been made against
maturing 22 June 2012. this facility. The facility supports the
Group’s commercial paper
programmes and may be used for
general corporate purposes including
acquisitions.
21 December 2005
¥259 billion Term Credit Facility, The facility was drawn down in full on
maturing 16 March 2011, entered into by 21 December 2005. The facility is
Vodafone Finance K.K. and guaranteed available for general corporate
by the Company. purposes, although amounts drawn
must be on-lent to the Company.
Under the terms and conditions of the $10.9 billion committed bank facilities, lenders
have the right, but not the obligation, to cancel their commitments and have
outstanding advances repaid no sooner than 30 days after notification of a change of
control of the Company. The facility agreements provide for certain structural changes
that do not affect the obligations of the Company to be specifically excluded from the
definition of a change of control. This is in addition to the rights of lenders to cancel
their commitment if the Company has committed an event of default.
Substantially the same terms and conditions apply in the case of Vodafone Finance
K.K.’s ¥259 billion term credit facility, although the change of control provision is
applicable to any guarantor of borrowings under the term credit facility. As of 31 March
2006, the Company was the sole guarantor.
In addition, Vodafone Japan has a fully drawn bilateral facility totalling ¥8 billion (£39 million)
which expires in January 2007 and which was included in the sale of Vodafone Japan.
Furthermore, three of the Group’s subsidiary undertakings are funded by external facilities
which are non-recourse to any member of the Group other than the borrower, due to the
level of country risk involved. These facilities may only be used to fund their operations.
Vodafone Egypt has a partly drawn (EGP250 million (£25 million)) syndicated bank facility
of EGP900 million (£90 million) that fully expires in September 2007. On 1 April 2006 the
undrawn EGP 650 million (£65 million) element of the facility lapsed. Vodafone Albania
has a fully drawn (€60 million (£42 million)) syndicated bank facility that expires at
various dates up to and including October 2012. Vodafone Romania has a fully drawn
€200 million syndicated bank facility that expires at various dates up to October 2010.
In aggregate, the Group has committed facilities of approximately £7,833 million, of
which £6,362 million was undrawn and £1,471 million was drawn at 31 March 2006.
The Group believes that it has sufficient funding for its expected working capital
requirements. Further details regarding the maturity, currency and interest rates of the
Group’s gross borrowings at 31 March 2006 are included in note 24 to the Consolidated
Financial Statements.
Financial assets and liabilities
Analyses of financial assets and liabilities, including the maturity profile of debt, currency
and interest rate structure, are included in notes 18 and 24 to the Consolidated Financial
Statements. Details of the Group’s treasury management and policies are included
within note 24 to the Consolidated Financial Statements.
Option agreements and similar arrangements
Potential cash inflows
As part of the agreements entered into upon the formation of Verizon Wireless, the
Company entered into an Investment Agreement with Verizon Communications,
formerly Bell Atlantic Corporation, and Verizon Wireless. Under this agreement, dated
3 April 2000, the Company has the right to require Verizon Communications or Verizon
Wireless to acquire interests in the Verizon Wireless partnership from the Company with
an aggregate market value of up to $20 billion during certain periods up to August 2007,
dependent on the value of the Company’s 45% stake in Verizon Wireless. This represents
a potential source of liquidity to the Group.
Exercise of the option could have occurred in either one or both of two phases. The Phase I
option expired in August 2004 without being exercised. The Phase II option may be
exercised during the periods commencing 30 days before and ending 30 days after any
one or more of 10 July 2006 and 10 July 2007. The Phase II option also limits the
aggregate amount paid to $20 billion and caps the payments under single exercises to
$10 billion. Determination of the market value of the Company’s interests will be by
mutual agreement of the parties to the transaction or, if no such agreement is reached
within 30 days of the valuation date, by appraisal. If an initial public offering takes place and
the common stock trades in a regular and active market, the market value of the
Company’s interest will be determined by reference to the trading price of common stock.
Potential cash outflows
In respect of the Group’s interest in the Verizon Wireless partnership, an option granted
to Price Communications, Inc. by Verizon Communications is exercisable at any time up
to and including 15 August 2006. The option gives Price Communications, Inc. the right
to exchange its preferred limited partnership interest in Verizon Wireless of the East LP
for either equity of Verizon Wireless (if an initial public offering of such equity occurs), or
common stock of Verizon Communications. If the exercise occurs, Verizon
Communications has the right, but not the obligation, to contribute the preferred
interest to the Verizon Wireless partnership, diluting the Group’s interest. However, the
Group also has the right to contribute further capital to the Verizon Wireless partnership
in order to maintain its percentage partnership interest at the level just prior to the
exercise of the option. Such amount is expected to be $1.0 billion.
During the 2005 financial year, the Group sold 16.9% of Vodafone Egypt to Telecom Egypt,
reducing the Group’s effective interest to 50.1%. Both parties also signed a shareholder
agreement setting out the basis under which the Group and Telecom Egypt would each
contribute a 25.5% interest in Vodafone Egypt to a newly formed company to be 50%
owned by each party. Within this shareholder agreement, Telecom Egypt was granted a put
option over its entire interest in Vodafone Egypt giving Telecom Egypt the right to put its
shares back to the Group at fair market value. On 31 October 2005, the shareholder
agreement between Telecom Egypt and Vodafone expired and the associated rights and
obligations contained in the shareholder agreement terminated, including the
aforementioned put option. However, the original shareholders agreement contained an
obligation on both parties to use reasonable efforts to renegotiate a revised shareholder
agreement for their direct shareholding in Vodafone Egypt on substantially the same terms
as the original agreement, which may or may not lead to a new agreement containing a
put option under the terms described above. As of 31 March 2006, the parties have not
agreed to abandon such efforts and as such, the financial liability relating to the initial
shareholder agreement has been retained in the Group’s balance sheet at 31 March 2006.
In respect of Arcor, the Group’s non-mobile operation in Germany, the capital structure
provides all partners, including the Group, the right to withdraw capital from
31 December 2026 onwards and this right in relation to the minority partners has been
recognised as a financial liability.
Off-balance sheet arrangements
The Group does not have any material off-balance sheet arrangements, as defined by
the SEC. Please refer to notes 30 and 31 to the Consolidated Financial Statements for a
discussion of the Group’s commitments and contingent liabilities.
Quantitative and qualitative disclosures about market risk
A discussion of the Group’s financial risk management objectives and policies and the
exposure of the Group to liquidity, market and credit risk is included within note 24 to
the Consolidated Financial Statements.