my revised nta calc arrives at 1.711, page-40

Hi Swap

I know the media are going to concentrate on the hedge liability that will show in the books at 31 Dec and disregard everything else positive for CER including an increase in the net value of its USD assets in AUD terms.

The hedge liability is IMO accounting jargon and misrepresentation of the current financial position of the company

In layman's terms, the hedge liability represents the loss that CER will realise when they settle their contracts with the counterparty. Instead of being entitled to the current exchange rate of 0.68 when they go to convert their USD to AUD, they will have to settle at a less favourable rate, the one they entered into the contract (which I think is 0.75 according to the presentation)

It has zero impact on cashflow.

It just means they are not going to enjoy the fruits of the lower exchange rate as they would have when the exchange rate was at 0.96 and they were settling at 0.75.

Thats why an asset appeared in the books at 30 June.

Same deals goes with the interest rates. They have been decreasing in the last six months so this will unfavourably affect the hedge book.

Lower exchange rate has much more of a positive effect on CER's financial position than a higher exchange rate.

The value of its US properties is going to increase substantially. I have explained this in previous threads. This is a tangible increase in assets.

CER does not hedge 100% of their foreign income and interest rates. Foreign income is hedged between 90 and 100% as per the annual report and interest rates about 75%.

A lower exchange rate and lower interest rates will marginally improve the distributable income per security.

Who cares really about the hedge book?

It just means when they settle their contracts with CNP, they are not going to get 0.68, they will get what they hedged at (0.75).

When the exchange rate was 0.96, they were not getting 0.96, they were instead getting 0.75.

Zero impact on cashflow and will have zero impact on dividends.

It will make NTA look worse than what it really is.

I know the media are just going to concentate on this.

Anyway CER as a way of making themselves independent of the CNP group are looking to unwind these contracts with CNP.

That will have a significant favourable impact on cashflow if this were to occur.