Purpose and Objectives
This policy sets out the processes in relation to managing loans receivable and payable (borrowings).
Policy Scope/Coverage
This policy applies to all monetary loans entered into by our company, in the capacity as either borrower or lender.
Not included within the scope of this policy are loans involving the temporary transfer of usage rights/beneficial use of property, plant or equipment.
Policy Statement
Our company may:
- Borrow funds in accordance with prevailing law; or
- Notionally loan funds internally in exceptional circumstances; or
- Loan funds to subsidiaries or related entities.
Loans Payable – Borrowings
General provisions
All borrowing facilities must be approved by the CFO before being referred to the CEO for approval.
The borrowing must be in Australian dollars and undertaken in Australia.
Our company will not create an encumbrance or offer security over our company assets for general borrowings. In exceptional circumstances, this can be approved jointly by the CEO and CFO.
Funds are to be borrowed from reputable lending institutions. The lenders S&P Credit Rating (Long Term) must be A- or above.
The amount that can be borrowed is at the discretion of the lender.
The agreed terms and conditions associated with borrowings are the responsibility of the Chief Financial Officer.
Interest rate risk management
The CFO should confirm, annually, what proportion of the total committed facilities are required for core debt purposes, in order that lower, more appropriate standby facilities are allocated for liquidity/funding management purposes.
No more than 50% of total debt facilities may mature within the next twelve months (excluding facilities that are going to be retired within the next twelve months).
Outstanding borrowings, at any given time, must not exceed an amount equal to the total of committed bank facilities.
Interest rate control limits
It is considered prudent for our company to hold a mix of fixed rate and floating rate borrowings. This establishes an element of certainty to our company in terms of interest expense, which provides comfort to management as well as to our company‘s bank lenders.
The policy parameters are for the level of core fixed rates to be within the following bands:
Period Minimum Fixed Rate Maximum Fixed Rate
0 – 1 years 30% 100%
1 – 3 years 30% 75%
3 – 5 years 0% 75%
Core debt is determined to be the minimum level of debt as shown by our company’s three (3) year rolling monthly cash flow forecast.
All interest rate hedging beyond five (5) years requires specific CFO approval.
The above percentages are cumulative.
Interest rate derivatives
The following instruments have been approved for use in hedging floating interest rate exposures:
- Interest Rate Swaps (“IRS”)
- Interest Rate Caps (“Cap”)
- Interest Rate Collars (“Collar”)
The use of other instruments is not permitted except with the authorisation of the Finance Committee.
Each proposed use of an interest rate derivative must be approved by the Finance Committee prior to execution.
Interest Rate Swaps involving terms exceeding five (5) years and valued at AUD$10 million (each transaction) must be authorised by the CEO.
Interest Rate Cap strike rates must be within 200 basis points (2.00%) of applicable market interest rates.
Interest Rate Caps with strike rates more than 200 base points (2.00%) of the prevailing market rates are disregarded for reporting purposes.
Outstanding/open option contracts cannot exceed 100% of total floating rate debt.
Where using Interest Rate Collars, the interest rate on the purchased borrower (ceiling rate) option must be higher than the interest rate on the sold option (floor rate). This is the only circumstance in which our company may sell an option.
Loans Receivable
General provisions
Internal loans may be made in exceptional circumstances, to fund the purchase of equipment or construction of small buildings.
Internal loans are to be granted on the basis that it would be more beneficial to fund a proposed purchase internally, as opposed to leasing the same items.
Loans may be made to associated bodies for working capital and for the purchase of equipment.
Loans to organisational units will not be granted if the procurement of the equipment can be made from existing or forthcoming operating funds.
Proposals for internal loans must be approved by the Finance Committee following endorsement from the Chief Financial Officer.
All requests for a loan are to be signed by the Head of the organisational unit, and forwarded to the Associate Director, Accounting and Reporting. Requests should contain a proposed repayment schedule and evidence to support the serviceability of such repayments.
All internal loans are subject to a formal loan agreement, which should detail the term, interest rates, drawdown and repayments schedule. The loan agreement must be signed by the requesting Head of the organisational unit before funds can be made available for release.
Where a drawdown is requested in excess of the original loan amount, approval by the Chief Operating Officer is required.
A loan register is to be maintained by Treasury Unit.
The Associate Director, Accounting and Reporting is required to review the register and loan account reconciliation regularly.
No loan may be written off without the approval of the Chief Financial Officer.
It is the borrower’s responsibility to ensure repayments are made per the agreed repayment schedule. If repayments are incorrect or not received in a timely manner, the Treasury Unit may debit them from the borrower’s accounts.
Where a loan is split between a number of organisational units, it is the borrower’s responsibility to ensure that the Treasury Unit are notified of any changes to the loan agreement.