14   Financial liabilities

Maturity of the financing (capital lockdown)

The financial liabilities of the Allreal Group consist of bank loans secured by mortgage, a convertible bond and a bond issue. The bank loans in the form of fixed advances and mortgages are extended on a rolling basis. Apart from the 2.50% bond issue and the 2.125% convertible bond, only bank loans with contractually agreed remaining terms to maturity greater than twelve months are reported as a long-term financial liabilities.

Long-term borrowings include a 2.50% bond issued in 2011 and a 2.125% convertible bond issued in 2009:

2.125% convertible bond 2009–2014

Until 19 September 2014, each bearer bond at CHF 5 000 par can be converted into 36.79447 registered shares of Allreal Holding AG. The bond may be redeemed early, and the bond terms customary for such capital market instruments shall apply. Specifically, this includes options for premature redemption either at any time at par, including accrued interest, provided more than 85% of the original principal amount has been converted and/or redeemed, or if the registered share of Allreal Holding AG closes at no lower then CHF 180.40 on 20 trading days within a period of 30 consecutive trading days. As at 30 June 2012, the conditions for premature redemption had not been met.

In accordance with the terms of the bond issue, the capital increase resulted in the subscription ratio being adjusted from 36.03604 to 36.79447 registered shares per bearer bond at par value CHF 5 000. In other words, the conversion price was adjusted from CHF 138.75 to CHF 135.89.

As at the balance sheet cut-off date, the 2.125% convertible bond is recognised as follows:

This means that during the period under review, CHF 1.5 million was charged to financial expense for the amortisation of the difference between the debt component and the redemption amount.

The difference of CHF 8.6 million between the debt component (CHF 191.3 million) and the redemption amount (CHF 199.95 million) as at 30 June 2012 is amortised over the remaining term to maturity of the convertible bond until 2014 using the effective interest method.

Deferred tax liabilities at the consolidated tax rate of 22% are recognised on the difference between the tax value of the convertible bond and the book value of the debt component, plus proportionate issuing costs, and are written back to income over the term of the convertible bond. In the first half of 2012, deferred taxes amounting to CHF 0.3 million were eliminated in favour of the tax expense.

In addition to the actual interest rate of 2.125% to be paid, the expense, which corresponds to an effective interest rate of 3.79%, is also deferred to the income statement.

2.50% bond issue 2011–2016

As at the balance sheet date, the 2.50% bond issue is recognized at CHF 148.9 million in long-term borrowings and during the period under review, CHF 0.1 million was spent on the amortisation of issuing costs. In addition to the actual interest rate of 2.50% to be paid, the expense which corresponds to an effective interest rate of 2.71%, is also deferred to the income statement.

Maturity of interest rates (interest lock-in period)

The classification of financial liabilities by interest lock-in periods is done on the basis of the actual date of maturity of the underlying fixed advances and mortgages and the maturity of the bond issue and convertible bond. In calculating the capital lockdown and interest lock-in periods, the respective par values of the bond issue and convertible bond and their 2.50%/2.125% coupons are taken.

As at 30 June 2012, fixed advances amounting to CHF 1 084.0 million and fixed-rate mortgages amounting to CHF 55.0 million (at nominal values) are in place, all of which were taken out with Swiss banks or insurance companies.

An interest rate swap with a contract value of CHF 100.0 million and an interest rate of 2.65% is maturing within the next twelve months.

The average interest rate of all financial liabilities as at 30 June 2012 is 2.38% (31 December 2011: 2.30%).

The average interest lock-in period for all financial liabilities as at 30 June 2012 is 55 months (31 December 2011: 51 months).