Finance Costs

Finance Costs by Nature

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US$ MillionAverage interest rate
P/L Cash
Balance at
31 December
Finance costs
2015 2014
decrease in
finance costs
Bank borrowings (including realised interest rate swap costs)4.0% 4.0%593.521.527.823%
Convertible bonds (Note)4.9% 2.1%332.517.115.0(14%)
Finance lease liabilities6.6% 6.6%-1.01.427%
4.4% 3.3%926.039.644.210%
Unrealised interest rate swap income(1.6)(1.7)
Other finance charges1.81.1
Total finance costs39.843.69%
Interest coverage (calculated as EBITDA divided by total gross finance costs)2.2x1 .9x

The KPIs on which management focuses to assess the cost of borrowings are average interest rates for the sources of borrowings and the Group’s interest coverage (see table above).

All financing and associated costs for existing vessel commitments and future vessel acquisitions, net of interest income, have been allocated to the business segments. Consequently, the Treasury segment has nil net finance cost.

The Group aims to achieve a balance between floating and fixed interest rates on its long-term borrowings. This is adjusted from time to time, depending on the interest rate cycle, using interest rate swap contracts where appropriate. During the year, US$6.5 million of interest rate swap contract costs were realised and US$1.6 million of unrealised gains arose resulting in a net US$4.9 million swap contract charge. As at 31 December 2015, 16% (2014: 12%) of the Group’s long-term borrowings were subject to floating interest rates. As at 31 December 2016 and 2017, we expect about 30% of the Group’s existing and committed long-term borrowings will be subject to floating interest rates.

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