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Finance Costs

Finance Costs by Nature

 Average interest rateBalance at
31 December
2014
Finance costs(Increase)/
decrease in
finance costs
US$ MillionP/LCash20142013
Bank borrowings including
   realised interest rate swap contracts
3.9%3.9%668.027.817.1(63%)
Finance lease liabilities6.6%6.6%18.31.45.876%
Convertible bonds4.9%1.8%313.415.015.21%
4.3%3.3%999.744.238.1(16%)
Finance lease purchase option
    termination expenses
-15.3
Unrealised interest rate swap income(17)(2.0)
Other finance charges1.10.7
Total finance costs43.652.116%

The KPIs on which management focuses to assess the cost of borrowings are:

  • Average interest rates for the sources of borrowings (see table above)
  • Group Interest Coverage

Group Interest Coverage is calculated as EBITDA divided by total gross finance costs

Our dry bulk and towage operations incurred finance costs of US$43.6 million (2013: US$52.1 million). Included in the 2013 finance costs were US$15.3 million termination costs of the embedded fixed interest rate swap contracts associated with exercising the 10 purchase options on finance-leased vessels.

Following the Group’s dry bulk vessel acquisitions and after securing new loans, additional finance costs and borrowings were allocated from Treasury to the dry bulk segment, thus reducing the segment net assets.

For 2014 onwards, 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$8.6 million of interest rate swap contract costs were realised and US$1.7 million of unrealised gains arose resulting in a net US$6.9 million swap contract charge. As at 31 December 2014, 12% (2013: 10%) of the Group’s long-term borrowings were subject to floating interest rates. As at 31 December 2015 and 2016, we expect 14% and 25% of the Group’s existing and committed long-term borrowings will be subject to floating interest rates.

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