25 CLASSIFICATION AND FAIR VALUE OF FINANCIAL INSTRUMENTS
(continued)
Measurement of fair values
Financial instruments measured at fair value
Derivatives
The fair values of cross currency swaps and interest rate swap (Level 2 fair values) are based
on banks’ quotes. These quotes are tested for reasonableness by discounting estimated future
cash flows based on the terms and maturity of each contract and using market interest rates for
a similar instrument at the measurement date. Fair values reflect the credit risk of the instrument
and include adjustments to take into account the credit risk of the Group entity and
counterparties when appropriate.
Financial instruments not measured at fair value
Other non-derivative financial liabilities are measured at fair value at initial recognition and for
disclosure purposes, at each annual reporting date. Fair value is calculated based on the
present value of future principal and interest cash flows, discounted at the market rate of interest
at the measurement date. Other non-derivative financial liabilities include interest-bearing
borrowings.
Interest rates used in determining fair values
The interest rates used to discount estimated cash flows, where applicable, are based on
forward rates as at 31 December plus a credit spread, and are as follows:
2014
2013
%
%
Interest-bearing borrowings
0.63 – 3.38 0.91 – 4.30
Financial instruments for which fair value is equal to the carrying value
These financial instruments include loans to joint ventures, trade and other receivables, cash
and cash equivalents, trade and other payables, security deposits and convertible bonds. The
carrying amounts of these financial instruments are an approximation of their fair values
because they are either short term in nature, effect of discounting is immaterial or reprice
frequently.
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