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In accordance with its hedging policy, the Group hedges at least
80% of its portfolio of total debts for at least three years by entering
into interest rate derivatives (fixed listed IRS). The hedging period
of minimum three years was chosen, on the one hand, to offset the
depressive effect this time lag would have on the net income and,
on the other hand, to forestall the adverse impact of any rise in
European short-term interest rates not accompanied by a simulta-
neous increase in national inflation. Finally, a rise in real interest rates
would probably be accompanied or rapidly followed by a revival of the
overall economic activity which would give rise to more robust rental
conditions and subsequently benefit the net result.
The banks that sign these contracts are generally different from
the ones providing the funds, but the Group makes sure that the
periods of the interest rate derivatives and the dates at which they
are contracted correspond to the renewal periods of its borrowing
contracts and the dates at which their rates are set.
If a derivative instrument hedges an underlying debt contracted at a
floating rate, the hedge relationship is qualified as a cash flow hedge.
If a derivative instrument hedges an underlying debt contracted at a
fixed rate, it is qualified as a fair value hedge.
Below are the results of a sensitivity study of the impact of changes
in rate; the impact comes mainly from the change in the fair value
of derivative financial instruments and the change in floating-rate
credits.
Credit risk
By virtue of Cofinimmo’s operational business, it deals with two
main counterparties: banks and customers. The Group maintains a
minimum rating standard for its financial counterparties. All financial
counterparties have an external investment grade rating. Customer
risk is mitigated by a diversification of customers and an analysis of
their solvency before and during the lease contract. Also see pages
36 and 63 of this Annual Financial Report, which contains a table with
the top ten customers and their rating as assigned by an external
rating agency.
Price risk
The Group could be exposed to a price risk linked to the Cofinimmo
stock options tied to its convertible bonds. However, given that this
option is out-of-the-money, the risk is considered unlikely.
Currency risk
The Group is not currently exposed to any currency risk.
Liquidity risk
The liquidity risk is limited by the diversification of the financing
sources and by the refinancing which is done one year before the
maturity date of the financial debt.
Summary of the potential effects, on equity and on the income statement, of a 1% change in the interest rate resulting from changes in
the fair value of the financial instruments (derivatives + convertibles), changes in the floating payments of the financial derivatives and
changes in the floating-rate credits.
(x 1,000 EUR)
2015
2014
Variation
Income
statement
Equity
Income
statement
Equity
+1%
41,141
0
57,442
7,171
-1%
-45,966
0
-37,791
-13,135
(x 1,000,000 EUR)
Change
Changes in the fair value of
the financial derivatives
Changes in the fair value of
the convertible bonds
Changes in floating payments
of the financial derivatives
Changes in floating-rate
credits
2015
2014
2015
2014
2015
2014
2015
2014
Fair value
at 31.12
-85
-125
388
381
-7
-18
-7
-13
+1%
51
67
5
9
-2
-9
-13
-25
-1%
-27
-44
-5
-9
-13
-20
-1
-11
186
ANNUAL ACCOUNTS /
Notes to the consolidated accounts