CapitaLand Integrated Commercial Trust - Annual Report 2021

Notes to the Financial Statements YEAR ENDED 31 DECEMBER 2021 29 FINANCIAL RISK MANAGEMENT (continued) Managing interest rate benchmark reform and associated risks (continued) Non-derivative financial liabilities The Group’s IBOR exposures to non-derivative financial liabilities as at 31 December 2021 included unsecured bank loans and unsecured MTN notes indexed to SOR and JPY LIBOR respectively. The Group is still in the process of communication with the counterparties for all SOR indexed exposures and specific changes have yet been agreed. The Group has amended all its JPY LIBOR indexed unsecured MTN notes to reference to the Tokyo Overnight Average Rate (TONA), effective from February 2022. Derivatives The Group holds cross currency swaps and interest rate swaps for risk management purposes which are designated in cash flow hedging relationship. The cross currency swaps and interest rate swaps have floating legs that are indexed to JPY LIBOR and SOR. The Group’s derivative instruments are governed by contracts based on the International Swaps and Derivatives Association (ISDA)’s master agreements. The Group is still in the process of communication with the counterparties for all SOR indexed exposures and specific changes have yet been agreed. The Group has amended all its JPY LIBOR indexed cross currency swaps to reference to the TONA effective from February 2022. Hedge accounting The Group has evaluated the extent to which its cash flow hedging relationships are subject to uncertainty driven by IBOR reform as at 31 December 2021. The Group’s hedged items and hedging instruments continue to be indexed to IBOR benchmark rates which are JPY LIBOR and SOR. These benchmark rates are quoted each day and the IBOR cash flows are exchanged with its counterparties as usual. The Group’s SOR cash flow hedging relationships extend beyond the anticipated cessation date for IBOR. The Group is still in the process of communication with the counterparties for all SOR indexed exposures and the relevant hedging instruments and hedged items have not been amended to transition from SOR. The Group has evaluated that there is uncertainty about when and how replacement may occur with respect to the relevant hedged items and hedging instruments and such uncertainty may impact the hedging relationships. The Group continues to apply the principles of amendments to FRS 109 issued in December 2020 (Phase 1) to those hedging relationships directly affected by interest rate benchmark reform. The Group has amended all its JPY LIBOR indexed unsecured MTN notes and cross currency swaps to reference to the TONA, effective from February 2022. The Group has applied the Phase 2 amendments for amortised cost measurement and hedge accounting. Given that the critical terms continue to match, the change in fair value of the hedged risk is the same as the change in fair value of the hedging instrument. Therefore, no hedge ineffectiveness is recognised as a result of the expected transition of the cash flow hedges from JPY LIBOR to TONA. The Group has judged that IBOR uncertainty is no longer present with respect to its cash flow hedge of JPY LIBOR-linked borrowings, once both the hedging instrument and the hedged item have been amended to the alternative benchmark rate with fixed adjustment spreads. Hedging relationships impacted by interest rate benchmark reform may experience ineffectiveness attributable to market participants’ expectations of when and how the shift from the existing IBOR benchmark rate to an alternative benchmark interest rate will occur for the hedged item and hedging instruments. This transition may also occur at different times for the hedged item and hedged instrument, which may lead to hedge ineffectiveness. The Group has measured its hedging instruments indexed to JPY LIBOR and SOR using available quoted market rates for JPY LIBOR-based and SOR-based instruments of the same tenor and similar maturity and has measured the cumulative change in the present value of hedged cash flows attributable to changes in JPY LIBOR and SOR on a similar basis. CapitaLand Integrated Commercial Trust 288