Telstra 2007 Annual Report Download - page 246

Telstra Corporation Limited and controlled entities
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Notes to the Financial Statements (continued)
(b) Risks and mitigation (continued)
Market risk (continued)
(i) Interest rate risk (continued)
Our debt is sourced from a number of financial markets covering
domestic and offshore, short term and long term funding. The
majority of our debt consists of foreign currency denominated
borrowings. We manage our debt in accordance with targeted
currency, interest rate, liquidity, and debt portfolio maturity profiles.
Specifically, we manage interest rate risk on our net debt portfolio by:
• controlling the proportion of fixed to variable rat e positions in
accordance with target levels;
• ensuring access to diverse sources of funding;
• reducing risks of refinancing by establishing and managing in
accordance with target maturity profiles; and
• undertaking hedging activit ies through the use of derivative
instruments.
We manage the interest rate exposure on our net debt portfolio by
adjusting the ratio of fixed interest debt to variable interest debt to
our target rates, as required by our debt management policy. Where
the actual int erest rate profile on the physical debt profile differs
substantially from our desired target, we use derivatives, principally
interest rate swaps, to adjust towards the t arget net debt profile.
Under the interest rate swaps we agree with other part ies to
exchange, at specified intervals (mainly quarterly), the difference
between fixed contract rat es and floating rate interest amounts
calculated by reference to the agreed notional principal amounts.
We hedge interest rate and currency risk on most of our foreign
currency borrowings by entering into cross currency principal swaps
and interest rate swaps when required, which have the economic
effect of converting foreign currency borrowings to Australian dollar
borrowings.
The ‘Derivative financial instruments and hedging activities’
contained in section (c) of this note provides further information.
34. Financial and capital risk management (continued)