17 Long-Term Borrowings

US$'00020182017
Non-current
Secured bank loans (a)703,114619,177
Other secured borrowings (b)34,26339,989
Unsecured convertible bonds (c)-117,710
737,377776,876
Current
Secured bank loans (a)97,80998,529
Other secured borrowings (b)5,7265,563
Unsecured convertible bonds (c)120,181-
223,716104,092
Total long-term borrowings961,093880,968

Please refer to Note 25(b) for reconciliation of long-term borrowings.

The fair value of long-term borrowings is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments and are within Level 2 of the fair value scale. Please refer to Note 9 (Fair value levels) for the definition of different levels.

The long-term borrowings are mainly denominated in United States Dollars.

Accounting policy – Borrowings

Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method.

Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liabilities for at least twelve months after the balance sheet date.

(a) Secured bank loans

The Group’s secured bank loans as at 31 December 2018 were secured, inter alia, by the following:

  1. Mortgages over certain owned vessels with net book values of US$1,588,102,000 (2017: US$1,518,309,000); and
  2. Assignment of earnings and insurances compensation in respect of the vessels.

These secured bank loans are repayable as follows:

US$'00020182017
Within one year97,80998,529
In the second year97,80997,798
In the third to fifth year286,275314,997
After the fifth year319,030206,382
800,923717,706
Average effective interest rate
    at year end (before hedging)
4.0%3.3%

(b) Other secured borrowings

The Group’s other secured borrowings as at 31 December 2018 were in respect of seven (2017: seven) owned vessels with net book values of US$100,352,000 (2017: US$107,441,000) (Note 6(b)) which were sold and simultaneously leased back by the Group on a bareboat charter basis. Under the terms of the leases, the Group has options to purchase these vessels at predetermined timings during the lease period and is obliged to purchase these vessels upon the expiry of the respective lease. Such borrowings are effectively secured as the rights to the leased vessels revert to the lessors in the event of default.

These other secured borrowings are repayable as follows:

US$'00020182017
Within one year5,7265,563
In the second year7,0355,726
In the third to fifth year23,61421,749
After the fifth year3,61412,514
39,98945,552
Average effective interest rate
    at year end (before hedging)
4.9%4.5%

(c) Unsecured convertible bonds

2018 2017
FaceLiabilityFaceLiability
US$'000valuecomponentvaluecomponent
3.25% coupon 
   due 2021125,000120,181125,000117,710

The carrying value of convertible bonds approximate their fair values.

Key items3.25% coupon due 2021
Issue sizeUS$125.0 million
Issue date8 June 2015
Maturity date3 July 2021 (approximately 6.1 years
from issue)
Coupon - cash cost3.25% p.a. payable semi-annually
in arrears on 3 January and 3 July
Effective interest rate5.70% charged to income statement
Redemption price100%
Conversion price
converting bonds into
shares (Note)
HK$3.03 (with effect from 9 August
2018)
Conversion at
bondholders' options
Any time on or after 19 July 2015
Bondholder put date
for redemption at
100% of the principal
amount
On 3 July 2019 (approximately 4.1
years from issue), each bondholder
will have the right to require the
Group to redeem all or some of the
bonds. As this is an unconditional
put option, accounting standards
require the Group to treat the
convertible bonds as falling due
on the put date.
Issuer call date for
redemption at 100% of
the principal amount
After 3 July 2019, the Group
may redeem the bonds in whole,
provided that the closing price of
the Company's shares is at least at
a 30% premium to the conversion
price then in effect for thirty
consecutive trading days.

Accounting policy

Convertible bonds are accounted for as the aggregate of (i) a liability component and (ii) an equity component.

At initial recognition, the fair value of the liability component of the convertible bonds is determined using a market interest rate for an equivalent non-convertible bond. The remainder of the proceeds is allocated to the conversion option as an equity component.

Transaction costs associated with the issuance of the convertible bonds are allocated to the liability and equity components in proportion to the allocation of proceeds. The liability component is subsequently carried at amortised cost, calculated using the effective interest method, until extinguished on conversion or maturity.

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