BP 2014 Annual Report Download - page 150

27. Financial instruments and financial risk factors – continued
The maximum credit exposure associated with financial assets is equal to the carrying amount. The group does not aim to remove credit risk entirely
but expects to experience a certain level of credit losses. As at 31 December 2014, the group had in place credit enhancements designed to mitigate
approximately $10.8 billion of credit risk (2013 $13 billion). Reports are regularly prepared and presented to the GFRC that cover the group’s overall
credit exposure and expected loss trends, exposure by segment, and overall quality of the portfolio.
For the contracts comprising derivative financial instruments in an asset position at 31 December 2014 it is estimated that over 70% (2013 over 80%)
of the unmitigated credit exposure is to counterparties of investment grade credit quality.
For cash and cash equivalents, the treasury function dynamically manages bank deposit limits to ensure cash is well-diversified and to reduce
concentration risks. At 31 December 2014, 89% of the cash and cash equivalents balance was deposited with financial institutions rated at least A- by
Standard & Poor’s Rating Services and Fitch Ratings, and A3 by Moody’s Investors Service. Of the total cash and cash equivalents at year end, $8,184
million was held in collateralised tri-partite repurchase agreements. The collateral is held by third-party custodians and would only be released toBPin
the event of repayment default by the borrower.
Trade and other receivables classified as financial assets are analysed in the table below. By comparing the BP credit ratings to the equivalent external
credit ratings, it is estimated that approximately 75-85% (2013 approximately 70-80%) of the unmitigated trade receivables portfolio exposure is of
investment grade credit quality.
$ million
Trade and other receivables at 31 December 2014 2013
Neither impaired nor past due 28,519 37,201
Impaired (net of provision) 37 27
Not impaired and past due in the following periods
within 30 days 841 1,054
31 to 60 days 249 249
61 to 90 days 178 216
over 90 days 727 883
30,551 39,630
Movements in the impairment provision for trade receivables are shown in Note 19.
Financial instruments subject to offsetting, enforceable master netting arrangements and similar agreements
The following table shows the gross amounts of recognized financial assets and liabilities (i.e. before offsetting) and the amounts offset in the balance
sheet.
Amounts which cannot be offset under IFRS, but which could be settled net under the terms of master netting agreements if certain conditions arise,
and collateral received or pledged, are also shown in the table to show the total net exposure of the group.
$ million
At 31 December 2014
Gross
amounts of
recognized
financial
assets
(liabilities)
Amounts
set off
Net amounts
presented on
the balance
sheet
Related amounts not set off
in the balance sheet
Net amount
Master
netting
arrangements
Cash
collateral
(received)
pledged
Derivative assets 11,515 (2,383) 9,132 (1,164) (458) 7,510
Derivative liabilities (8,971) 2,383 (6,588) 1,164 – (5,424)
Trade receivables 10,502 (6,080) 4,422 (485) (145) 3,792
Trade payables (9,062) 6,080 (2,982) 485 – (2,497)
At 31 December 2013
Derivative assets 7,271 (1,563) 5,708 (344) (231) 5,133
Derivative liabilities (5,457) 1,563 (3,894) 344 – (3,550)
Trade receivables 11,034 (7,744) 3,290 (1,287) (264) 1,739
Trade payables (10,619) 7,744 (2,875) 1,287 – (1,588)
(c) Liquidity risk
Liquidity risk is the risk that suitable sources of funding for the group’s business activities may not be available. The group’s liquidity is managed
centrally with operating units forecasting their cash and currency requirements to the central treasury function. Unless restricted by local regulations,
subsidiaries pool their cash surpluses to treasury, which will then arrange to fund other subsidiaries’ requirements, or invest any net surplus in the
market or arrange for necessary external borrowings, while managing the group’s overall net currency positions.
Standard & Poor’s Rating Services changed BP’s long-term credit rating to A (negative outlook) from A (positive outlook) and Moody’s Investors Service
rating changed to A2 (negative outlook) from A2 (stable outlook) during 2014.
During 2014, $11.8 billion of long-term taxable bonds were issued with terms ranging from 5 to 12 years. Commercial paper is issued at competitive
rates to meet short-term borrowing requirements as and when needed.
As a further liquidity measure, the group continues to maintain suitable levels of cash and cash equivalents, amounting to $29.8 billion at 31 December
2014 (2013 $22.5 billion), primarily invested with highly rated banks or money market funds and readily accessible at immediate and short notice. At
31 December 2014, the group had substantial amounts of undrawn borrowing facilities available, consisting of $7,375 million of standby facilities, of
which $6,975 million is available to draw and repay until the first half of 2018, and $400 million is available to draw and repay until April 2016. These
facilities were renegotiated during 2013 with 26 international banks, and borrowings under them would be at pre-agreed rates.
The group also has committed letter of credit (LC) facilities totalling $7,150 million with a number of banks, allowing LCs to be issued for a maximum
two-year duration. There were also uncommitted secured LC facilities in place at 31 December 2014 for $2,410 million, which are secured against
inventories or receivables when utilized. The facilities only terminate by either party giving a stipulated termination notice to the other.
146 BP Annual Report and Form 20-F 2014