Mandarin Oriental International Limited - Mandarin Oriental Hotel ...

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FINANCIAL REVIEW CONTINUED
TREASURY ACTIVITIES
The Group manages its exposure to financial risk
using a variety of techniques and instruments.The
main objective is to manage exchange and interest
rate risks and to provide a degree of certainty in
respect of costs.The Group has fixed or capped
interest rates on 69% of its gross borrowings.
In respect of specific hotel financing, borrowings
are normally taken in the local currency to hedge
partially the investment and the projected income.
At 31st December 2005, the Group’s net assets
were denominated in the following currencies:
MANDARIN ORIENTAL INTERNATIONAL LIMITED
Net assets
Hong Kong Dollar 11%
United States Dollar 40%
United Kingdom Sterling 20%
Other 29%
100%
Investment of the Group’s cash resources, which
totalled US$169 million at 31st December 2005,
is managed so as to minimize risk while seeking
to enhance yield.The treasury function is not
permitted to undertake speculative transactions
unrelated to underlying financial exposures.
The Group, excluding associates, had committed
banking facilities totalling US$783 million,
of which US$478 million were drawn at
31st December 2005.The facilities are due
for repayment as follows:
Facilities Facilities
committed drawn
US$m US$m
Within one year 47 8
Between one and two years 37 24
Between two and three years 181 181
Between three and four years 15 10
Between four and five years 417 244
Beyond five years 86 11
783 478
The average tenor of the Group’s bank
borrowings is approximately four years
(2004: approximately five years).
6.75% convertible bonds
The Group’s US$75 million, 6.75% convertible
bonds had been fully converted into ordinary
shares by early 2005 in accordance with their
terms, resulting in the issue of a total of
113,062,580 ordinary shares of the Company.
The Group’s weighted average interest rate on
its borrowings was 4.7% in 2005 compared to
4.7% in 2004. Excluding the convertible bonds,
the weighted average interest rate in 2004 would
have been 4.2%.
SUPPLEMENTARY
INFORMATION
There are two areas where the Directors believe it
is appropriate to present additional information:
Valuation of hotel properties held on
leasehold
The Group’s policy is to revalue all hotel
properties regularly as it considers these properties
to be long-term investments. Prior to 2003,
all property investments, whether freehold or
leasehold, were revalued and carried at fair market
value. However, IFRS no longer permits the
carrying of leasehold owner-occupied land at
fair market valuation.The Group considers
that the IFRS treatment does not reflect the
economic substance of the underlying
investments, particularly the Group’s 999 year
leases in respect of Mandarin Oriental, Hong
Kong and The Excelsior.