25. BORROWINGS FROM BANKS AND OTHER FINANCIAL INSTITUTIONS

Amounts owed to banks and other financial institutions can be broken down as follows:

(in thousands of euro)
  12/31/2011 12/31/2010
  TOTAL NON
CURRENT
CURRENT TOTAL NON
CURRENT
CURRENT
Bonds 499,662 499,662 - - - -
Borrowings from banks 1,209,064 875,080 333,984 1,098,898 868,960 229,938
Borrowings from other financial
institutions
7,959 7,216 743 10,039 8,982 1,057
Financial lease payables 23,102 19,950 3,152 19,466 16,232 3,234
Financial accrued expenses and
deferred income
31,671 589 31,082 9,037 537 8,500
Other financial payables 490 - 490 4,786 - 4,786
  1,771,948 1,402,497 369,451 1,142,226 894,711 247,515

 

The item bonds refers to the unrated bond placed by Pirelli & C. S.p.A. on the Eurobond market for an aggregate nominal amount of euro 500 million. The bond has the following characteristics:

  • issuer: PIRELLI & C. S.p.A.
  • guarantor: PIRELLI Tyre S.p.A.
  • amount: euro 500 million
  • settlement date: February 22, 2011
  • maturity date: February 22, 2016
  • coupon: 5.125%
  • issue price: 99.626%
  • redemption price: 100%
  • effective yield on maturity: 5.212%

The carrying value of the bond at December 31, 2011 was determined as follows:

(in thousands of euro)
  12/31/2011
Nominal value 500
Transaction costs (5,296)
Amortisation of effective interest rate 816
Adjustment for fair value hedge accounting  4,142
  499.662

 

Borrowings from banks refer mainly to:

  • five loans granted by the European Investment Bank (EIB) in favour of Pirelli & C. S.p.A. and Pirelli Tyre S.p.A. for research and development projects and in favour of S.C. Pirelli Tyres Romania S.r.l. for local industrial investments. These loans total Euro 400,000 thousand, with utilisation of euro 390,000 thousand, of which euro 125,000 thousand classified as current bank borrowings and 265,000 thousand classified as non-current bank borrowings;
  • euro 360,000 thousand for utilisation of the syndicated facility, granted to Pirelli & C. S.p.A., Pirelli Tyre S.p.A. and Pirelli International Limited for a total amount of euro 1,200,000 thousand, subscribed on November 30, 2010 and having a maturity of five years. These utilisations were classified as non-current bank borrowings due in 2015 (between 2 and 5 years).

At December 31, 2011 the Group had, besides cash and financial assets held for trading of euro 717,486 thousand, unused committed credit facilities of euro 840,000 thousand (euro 1,220,000 thousand at December 31, 2010), with the following maturities:

(in thousands of euro)
   12/31/2011
12/31/2010
2011    20,000
2015 840,000 1,200,000
   840,000 1,220,000

 

Please see note 10.1 “Finance leases” in regard to finance lease payables. The increase in finance lease payables from the previous year stems from the change in finance lease agreements in effect at December 31, 2011 as compared with the previous year.

Financial accrued expenses and deferred income, totalling euro 31,671 thousand, mainly include euro 21,974 thousand for the interest accrued but not yet paid on the bond.

Financial payables backed by secured guarantees (pledges and mortgages) totalled euro 26,738 thousand (euro 16,593 thousand at December 31, 2010).

For current payables, the carrying amount is considered approximate to their fair value. Current payables include the portion of non-current financial payables, totalling euro 284,900 thousand (euro 150,000 thousand at December 31, 2010), that will be settled within one year.

The fair value of non-current payables is shown below, compared with their carrying amount:

(in thousands of euro)

12/31/2011 12/31/2010
Carying
amount
Fair value Carying
amount
Fair value
Bonds 499,662 481,370    
Borrowings from banks 875,080 879,864 868,960 875,733
Other non-current financial payables 27,755 27,755 25,751 25,751
  1,402,497 1,388,989 894,711 901,484

 

At December 31, 2011, the breakdown of payables by interest rate and by currency of origin of the debt is as follows:

2011 (in thousands in euro)
  FIXED RATE FlOATING RATE TOTAl
EUR 131,693   11,730   143,423
BRL (Brazil Real) 131,200   9,759   140,959
CNY (Chinese Renminbi) 19,616   -   19,616
RON (Romanian Leu) 296   24,643   24,939
TRY (Turkish Lira) 30,755   -   30,755
Other currencies 9,759   -   9,759
Current payables 323,319 88% 46,132 12% 369,451
 
EUR 861,350   222,550   1,083,900
USD 5,308   -   5,308
BRL (Brazil Real) 19,530   104,564   124,094
CNY (Chinese Renminbi) -   113,277   113,277
RON (Romanian Leu) -   65,101   65,101
ARS (Argentinian Pesos) 10,817   -   10,817
Non-current payables 897,005 64% 505,492 36% 1,402,497
  1,220,324 69% 551,624 31% 1,771,948

 

The situation at December 31, 2010 was as follows:

2010 (in thousands of euro)
  FIXED RATE FlOATING RATE TOTAL
EUR 17,307   53,201   70,508
BRL (Brazil Real) 93,617   -   93,617
CNY (Chinese Renminbi) 30,681   31,861   62,542
Other currencies 20,848   -   20,848
Current payables 162,453 66% 85,062 34% 247,515

EUR 579,862   120,696   700,558
USD 6,705   -   6,705
BRL (Brazil Real) 8,306   48,038   56,344
CNY (Chinese Renminbi) -   61,049   61,049
RON -   70,055   70,055
Non-current payables 594,873 66% 299,838 34% 894,771
  757,326 66% 384,900 34% 1,142,226

 

The value of fixed-rate payables indicated above includes those established by contract as fixedrate payables and those established by contract as floating-rate payables to offset which hedging derivatives have been put in place.

The Group’s exposure to fluctuations in interest rates on financial payables, both in terms of the type of rate and their resetting date, are summarised below:

(in thousands of euro)
  12/31/2011 12/31/2010
  Total Fixed rate Floating
rate
Total Fixed rate Floating
rate
Up to 6 months
686,448 244,824 441,624 476,220 96,305 379,915
From 6 to 12 months
87,818 87,818 - 68,646 68,646 -
From 1 to 5 years
979,010 869,010 110 596,148 591,163 4,985
More than 5 years
18,672 18,672 - 1,212 1,212 -
  1,771,948 1,220,324 551,624 1,142,226 757,326 384,900

 

The average cost of debt in 2011 was 5.5% (4.42% in 2010).

In regard to the financial covenants and negative pledge clauses on utilised credit facilities (included in bank borrowings), the revolving credit line granted to PIRELLI & C. S.p.A., Pirelli Tyre S.p.A. and Pirelli International Limited for a total of euro 1,200,000 thousand, used for euro 360,000 thousand, envisages just one financial covenant: a certain ratio must be maintained between consolidated net indebtedness and gross operating profit. This parameter was fully satisfied at December 31, 2011. In regard to the negative pledges, the credit facility provides for a commitment not to grant secured guarantees, above a threshold defined as the greater of euro 100,000 thousand and 3% of Total Assets (as defined in the consolidated financial statements of PIRELLI & C. S.p.A.), with the exception of secured guarantees on the existing debt or debt to replace it, to be granted pursuant to law, relating to export finance, project finance and subsidised finance.

The other outstanding financial payables do not contain financial covenants.