hedges aussie $$, page-7

Hey all,

With regards to the hedges, it is imperative that we establish the following:

- When these equity hedges were entered into and
- When they were entered into, what spot rate was required at the time for these hedges to be closed out.

Is it mind boggling that with the spot rate just a tad under 93, that the majority of these hedges remain open.

The average weighted expiry of these hedges is still about another 4 years away. The additional increase in AUD spot rate that we theoretically would have required to close these hedges at a zero sum game 2 years ago, would have been at the very least the interest rate differentials between the US and Australia over the last 2 years.

A 4 year forward rate of 85 probably needs a spot rate in the mid 90s today. A six year forward rate of 85 probably needs a spot rate somewhere close to, if not in excess of parity.

However, the AUD was never at parity in 2007.

If anyone has a look at an FX chart pre Dec 2007, you will note that the AUD mostly traded under 90.

That means when CER entered into these equity hedges with CNP, CER were automatically out of the money by a substantial amount.

They would not have been able to close these hedges automatically without realising a substantial loss.

CNP then would have booked these gains as unrealised profits, further dressing up their profits.

As CNP and CER theoretically had the same board, these hedges were clearly entered into for the benefit of CNP not CER. A clear breach of s181 of the Corps Act by the CER directors!

This is something that must and will be brought up at the AGM

There's no nice way to put it but CER was being r$ped by CNP.

Im not too concerned about these hedges going forward for the following reasons:

- The AUD will most likely continue to go from strength to strength
- Even if no hedges are closed out, if CER's NTA gets back to 90c by Dec 2011, then CER will no longer be in an overhedged position. Also CER has total outstanding equity hedges of A$2.2b.

That is not an unrealistic scenario.

Anyway keep the faith people. Great contributions of late by all the gang here

Any thoughts?

Cheers