19 Long-Term Borrowings

US$'000 2016 2015
Secured bank loans (a) 599,102 519,783
Other secured borrowings (b) 29,033 -
Unsecured convertible bonds (c) 115,372 113,443
743,507 633,226
Secured bank loans (a) 91,734 73,684
Other secured borrowings (b) 4,001 -
Unsecured convertible bonds (c) - 219,055
95,735 292,739
Total long-term borrowings 839,242 925,965

The fair value of long-term borrowings is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments and are within Level 2 of the fair value scale. Please refer to Note 11 (Fair value levels) for the definition of different levels.

The long-term borrowings are mainly denominated in United States Dollars.

Accounting policy – Borrowings

Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method.

Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liabilities for at least twelve months after the balance sheet date.

(a) Secured bank loans

The Group’s secured bank loans as at 31 December 2016 were secured, inter alia, by the following:

(i) Mortgages over certain owned vessels with net book values of US$1,419,515,000 (2015: US$1,470,156,000) (Note 6(b)); and

(ii) Assignment of earnings and insurances compensation in respect of the vessels.

These secured bank loans are repayable as follows:

US$'000 2016 2015
Within one year 91,734 73,684
In the second year 88,944 78,899
In the third to fifth year 303,226 254,381
After the fifth year 206,932 186,503
690,836 593,467
Average effective interest rate at
     year end (before hedging)
3.0% 2.8%

(b) Other secured borrowings

The Group’s other secured borrowings as at 31 December 2016 were in respect of five owned vessels with net book values of US$79,384,000 (2015: Nil) (Note 6(b)) which were sold and simultaneously leased back by the Group on a bareboat charter basis during the year. Under the terms of the leases, the Group has options to purchase these vessels at pre-determined timings during the lease period and is obliged to purchase these vessels upon the expiry of the respective lease. Such borrowings are effectively secured as the rights to the leased vessels revert to the lessors in the event of default.

These other secured borrowings are repayable as follows:

US$'000 2016
Within one year 4,001
In the second year 4,124
In the third to fifth year 15,123
After the fifth year 9,786
Average effective interest rate at year end
     (before hedging)

(c) Unsecured convertible bonds

2016 2015
US$'000 Face value Liability
Face value Liability
3.25% coupon due 2021 125,000 115,372 125,000 113,443
1.75% coupon due 2016 (i) - - 105,590 105,140
1.875% coupon due 2018 (ii) - - 123,800 113,915
Total 125,000 115,372 354,390 332,498

The carrying value of convertible bonds approximate their fair values.

Key items 3.25% coupon due 2021
Issue size US$125.0 million
Issue date 8 June 2015
Maturity date 3 July 2021 (approximately 6.1 years from issue)
Coupon - cash cost 3.25% p.a. payable semi-annually in arrears on 3 January and 3 July
Effective interest rate 5.70% charged to income statement
Redemption price 100%
Conversion price converting bonds into
shares (Note)
HK$3.07 (with effect from 30 May 2016)
Conversion at bondholders' options Any time on or after 19 July 2015
Bondholder put date for redemption at
100% of the principal amount
On 3 July 2019 (approximately 4.1 years from issue), each bondholder will have the right to
require the Group to redeem all or some of the bonds. As this is an unconditional put option,
accounting standards require the Group to treat the convertible bonds as falling due on the
put date.
Issuer call date for redemption at 100%
of the principal amount
After 3 July 2019, the Group may redeem the bonds in whole, provided that the closing price
of the Company's shares is at least at a 30% premium to the conversion price then in effect
for thirty consecutive trading days.
Note:      The conversion price was subject to an adjustment arising from the issue of Shares by way of rights (Note 20(b)) during 2016. The conversion price
               was also subject to an adjustment arising from any cash dividends paid by the Company according to a pre-determined adjustment factor. Such
               adjustment would have become effective on the first date on which the Shares were traded ex-dividend had a dividend been declared.

Accounting policy – Convertible bonds

Convertible bonds are accounted for as the aggregate of (i) a liability component and (ii) an equity component.

At initial recognition, the fair value of the liability component of the convertible bonds is determined using a market interest rate for an equivalent non-convertible bond. The remainder of the proceeds is allocated to the conversion option as an equity component, recognised in other comprehensive income.

Transaction costs associated with the issuance of the convertible bonds are allocated to the liability and equity components in proportion to the allocation of proceeds. The liability component is subsequently carried at amortised cost, calculated using the effective interest method, until extinguished on conversion or maturity.


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