03 Financial Statements NOTE 14: FINANCIAL INSTRUMENTS

CEFC ANNUAL REPORT / 2014–15

Note 14: Financial Instruments

 

2015

$’000

2014

$’000

Note 14A: Categories of Financial Instruments

 

Financial Assets

   

Cash and cash equivalents

149,577

123,102

Total cash and cash equivalents

149,577

123,102

Loans and receivables

   

Trade and other receivables

6,451

4,759

Short-term investments

100,000

270,000

Loans and advances

322,871

231,627

Other financial assets

597,875

621,822

Total loans and receivables

1,027,197

1,128,208

AFS financial assets

   

Debt

75,902

-

Equity securities

1,155

305

Total AFS financial assets

77,057

305

Carrying amount of financial assets

1,253,831

1,251,615

 

 

2015

$'000

2014

$'000

Financial Liabilities

   

At amortised cost

   

Trade creditors and accruals

1,617

1,194

Other

304

257

Total

1,921

1,451

Carrying amount of financial liabilities

1,921

1,451

Note 14B: Net Gains on Financial Assets

Cash and cash equivalents

   

Interest from cash and short-term investments

12,711

16,545

Interest from other financial assets

15,932

8,965

Net gains on cash and cash equivalents

28,643

25,510

Loans and receivables

   

Interest income and fees

22,826

14,863

Unwind of concessional loan discount

1,508

1,414

Net gains on loans and receivables

24,334

16,277

AFS financial assets

   

Interest income from debt securities

1,642

-

Distributions from equity investments

19

-

Net gains on AFS financial assets

1,661

-

Net gains on financial assets

54,638

41,787

 

The total interest income from financial assets not at fair value through profit or loss was $54,638,000 (2014: $41,787,000).

 

 

2015

$'000

2014

$'000

Note 14C: Net losses on Financial Liabilities

Financial liabilities – at amortised cost

   

Interest expense

6

30

Net losses on financial liabilities – at amortised cost

6

30

Net losses on financial liabilities

6

30

 
The total interest expense from financial liabilities not at fair value through profit or loss was $6,000 (2014: $30,000).

Note 14D: Fair Value of Financial Instruments

The following table provides an analysis of financial instruments that are measured at fair value, by valuation method.

The different levels are defined below:

Level 1: Fair value obtained from unadjusted quoted prices in active markets for identical instruments

Level 2: Fair value derived from inputs other than quoted prices included within Level 1 that are observable for the instrument, either directly or indirectly.

Level 3: Fair value derived from inputs that are not based on observable market data. Fair value hierarchy for financial assets:                                                                                                                                                                                                                                                                                                                                                                      

  Fair Value Carrying Value
  Level 1
2015
$'000
Level 2
2015
$'000
Level 3
2015
$'000
Total
2015
$'000
Total
2015
$'000
Financial assets at fair value
AFS financial assets 77,027 - 30 77,057 77,057
Financial assets for which fair value is disclosed
Loans and advances - 235,000 115,000 350,000 322,871
Total 77,027 235,000 115,030 427,057 399,928


There was no transfer between levels.

  Fair Value Carrying Value
  Level 1
2014
$'000
Level 2
2014
$'000
Level 3
2014
$'000
Total
2014
$'000
Total
2014
$'000
Financial assets at fair value
AFS financial assets 250 - 55 305 305
Financial assets for which fair value is disclosed
Loans and advances - 161,000 70,900 232,000 231,627
Total 250 161,000 70,955 232,305 231,932


Management assessed that cash, cash equivalents, short-term deposits, trade and other receivables, other financial assets, supplier payables, and other payables approximate their carrying amounts largely due to the short-term maturities of these instruments.

The fair value of the financial assets and liabilities is included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The following is a description of the determination of fair value for financial instruments using valuation techniques:             

AFS financial assets

  • Fair value of quoted debt securities is derived from quoted market prices in active markets;

  • Fair value of quoted equities is derived from quoted market prices in active markets; and

  • Fair value of the unquoted equities has been estimated using a Discounted Cash Flow (‘DCF’) model. The valuation requires Management to make certain assumptions about the model inputs, including forecast cash flows, the discount rate, credit risk and volatility. The probabilities of the various estimates within the range can be reasonably assessed and are used in Management’s estimate of fair value for these unquoted equity investments.

Loans and advances

  • The fair value on day one is the transaction price, and subsequent fair value is determined by applying market interest rates and using the valuation technique of discounted cash flows through an external valuation system.

  • Non-concessional loans are classified as level 2 and the long-term fixed-rate and variable-rate receivables are valued by the Corporation through an external valuation system that recognises the discounted value of future cash flows based on current market interest rate (base rate plus a credit adjusted margin) for each customer. The credit adjusted margin for each customer is determined by reference to their Shadow Credit Rating (SCR) as set forth in Note 5D: Loans and Advances. These SCR’s are reviewed regularly throughout the year by the credit managers within the portfolio management team and any significant changes are reported quarterly to the Board of Directors.

  • Concessional loans together with any loans that are identified as requiring a specific impairment allowance are classified as level 3 as the impact on the estimated fair value of the loan arising from the concessionality or a forecast shortfall in cash flows in the case of an impaired loan have to be derived from inputs that are not necessarily based on observable market data. Concessional loans include inputs such as the likely rate of deployment of capital by co-financiers and impaired loans will include inputs such as the likely recovery amount and date of realisation in respect of any security held. Concessional long-term fixed-rate and variable-rate receivables are also valued by the Corporation through an external valuation system that recognises the discounted value of future cash flows based on current market interest rate (base rate plus a credit adjusted margin) for each customer. The credit adjusted margin for each customer is determined by reference to their Shadow Credit Rating (SCR) as set forth in Note 5D: Loans and Advances and these SCR’s are reviewed regularly throughout the year by the credit managers within the portfolio management team and any significant changes are reported quarterly to the Board of Directors. The impact of concessionality as well as recoverable amounts related to security on impaired assets are factored into the forecasts of future cash flows for each of the transactions.

  • When it is likely that a loan or debt will not be recovered in full, a specific event is recognised and recorded using the discounted cash flow method. All individual facilities are reviewed regularly. 

Note 14E: Credit Risk

Credit risk arises from the possibility of defaults on contractual obligations, resulting in financial loss.

The Corporation has assessed the risk of default on payment and has not identified any specific loans that are past due at reporting date and likely to be impaired. The Corporation managed its credit risk by undertaking background and credit checks prior to allowing a debtor relationship. In addition, the Corporation had policies and procedures that guided employee’s debt recovery techniques that were to be applied.

The Corporation evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Corporation upon extension of credit, is based on Management’s credit evaluation of the counterparty. Collateral held will vary, but may include:

  • a floating charge over all assets and undertakings of an entity, including uncalled capital and called but unpaid capital;

  • specific or inter-locking guarantees;

  • specific charges over defined assets of the counterparty; and

  • loan agreements which include affirmative and negative covenants and in some instances, guarantees of counterparty obligations.

Credit quality of financial instruments not past due or individually determined as impaired

 

 

Note

Not past due nor impaired

2015

$’000

Not past due nor impaired

2014

$’000

Past due or impaired

2015

$'000

Past due or impaired

2014

$'000

Total 2015

$’000

Total 2014

$’000

Cash and cash equivalents

5A

149,577

123,102

-

-

149,577

123,102

Short-term investments

5B

100,000

270,000

-

-

100,000

270,000

Trade and other receivables

5C

6,451

4,759

-

-

6,451

4,759

Loans and advances

5D

322,276

232,231

3,431

-

325,707

232,231

AFS financial assets

5E

77,057

305

-

-

77,057

305

Other financial assets

5F

597,875

621,822

-

-

597,875

621,822

Total financial assets

1,253,236

1,252,219

3,431

-

1,256,667

1,252,219

Committed credit facilities

17

704,245

685,564

-

-

704,245

685,564

Total Commitments

704,245

685,564

-

-

704,245

685,564

Total credit risk exposure

1,957,481

1,937,783

3,431

-

1,960,912

1,937,783


Cash and cash equivalents are held with authorised deposit-taking institutions in Australia in accordance with the prudential controls set by the Public Governance, Performance and Accountability Act, 2014 (previously the Commonwealth Authorities and Companies Act 1997).

Non-financial assets, including property, plant and equipment, have not been included in the above table as there is no significant associated credit risk.

Ageing of financial assets that were past due but not impaired for 2015

The Corporation had no amounts past due but not impaired at 30 June 2015. 

Note 14F: Liquidity Risk

The Corporation’s financial liabilities are trade creditors, operating leases and amounts owing to the Australian Taxation Office. The exposure to liquidity risk is based on the notion that the Corporation will encounter difficulty in meeting its obligations associated with financial liabilities. This is considered highly unlikely as the Corporation has significant cash balances, all invested short- term, access to government funding, and internal policies and procedures put in place to ensure there are appropriate resources to meet its financial obligations.

Undiscounted financial liabilities 2015

Total

-

1,921

-

-

-

1,921

 

On demand

$’000

within 1 year

$’000

1 to 2 years

$’000

2 to 5 years

$’000

 > 5 years

$’000

Total

$’000

Trade creditors and accruals

-

1,617

-

-

-

1,617

Other

-

304

-

-

-

304

Undiscounted financial liabilities 2014

Total

-

1,451

-

-

-

1,451

On demand

$’000

within 1 year

$’000

1 to 2 years

$’000

2 to 5 years

$’000

 > 5 years

$’000

 Total

$’000

Trade creditors and accruals

-

1,194

-

-

-

1,194

Other

-

257

-

-

-

257


Any financing shortfall is addressed through the contribution of equity provided by the Australian Government from the CEFC Special Account that is to be funded in an amount of $2 billion per annum for each of the 5 years commencing 1 July 2013. The Corporation has drawn amounts totalling $1,131.6 million from this Special Account to fund its initial tranche of investments. 

Note 14G: Market Risk

The Corporation holds basic financial instruments that do not expose it to certain market risks, such as ‘Currency risk’ and ‘Other price risk’. However, the Corporation is involved in lending and therefore inherent interest rate risks arise.

The Corporation accounts for loans and advances at amortised cost, so any change to fair value arising from a movement in the market interest rates has no impact on the reported profit or loss unless an investment is sold prior to maturity and crystallises a previously unrealised gain or loss.

The Corporation accounts for AFS debt securities at fair market value. A +/-10bp change in the yield of the debt securities would have approximately a +/- $425,000 impact on the fair value at which the instruments are recorded in the statement of financial position.

Note 14H: Concentration of Exposure

Concentration of credit risk exists when a number of counterparties are engaged in similar activities, or operate in the same geographical areas or industry sectors and have similar economic characteristics so that their ability to meet contractual obligations is similarly affected by changes in economic, political or other conditions.

The Corporation will have a significant concentration of exposure to the energy and renewables sectors since it has been established for investment in commercialisation and deployment of (or in relation to the use of) Australian based renewable energy, energy efficiency and low emissions technologies (or businesses that supply goods or services need to develop the same), with at least 50% of its investment in the renewables sector.

The Corporation is in the early stage of investment and therefore will have a relatively concentrated exposure to individual assets, entities and industries until such time as it is able to establish a more broad and diversified portfolio.

 

 

2015

$’000

2014

$’000

Note 14I: Concessional Loans

 

Loan Portfolio

   

Nominal value

123,165

84,977

Less principal repayment

(6,729)

(5,077)

Less unexpired discount

(7,044)

(7,330)

Less impairment allowance

(1,336)

(4)

Carrying value of concessional loans

108,056

72,566