Financial risks

Financial risks

International operations such as those at SSAB involve a number of financial risks in the form of financing, liquidity, interest rate, currency and credit risks. The management of these risks is governed by the Group’s Finance Policy, which has been adopted by the Board of Directors. Most financial transactions take place through the parent company's treasury function in Stockholm and through SSAB Finance in Ireland. For further information about the Group’s financial risk management, see Note 29 (p. 202) in SSAB’s Annual Report 2018.
Risk factor Risk description Response and initiatives
REFINANCING RISK/LIQUIDITY RISK ‘Refinancing risk/liquidity risk’ means the risk of SSAB being unable to pay its obligations due to insufficient liquidity or difficulties in raising new loans. The borrowing strategy is focused on securing the Group’s needs for loan financing with regard to long-term loans and SSAB’s day-to-day payment obligations to its lenders and suppliers. Borrowing takes place primarily through the parent company, taking into consideration the Group’s financial targets. In order to minimize the refinancing risk, the objective is that long-term loans will have an even maturity and an average term to maturity in excess of three years. The liquidity buffer, i.e. non-utilized, binding credit facilities, as well as cash and cash equivalents, should exceed 10 percent of the Group's sales.
MARKET RISK Market risks comprise the risk of the Group’s earnings or financial position being affected by movements in market prices, such as interest rates and exchange rates. Interest rate risks:
The Group’s interest rate risks relate to movements in market interest rates and their impact on the debt portfolio. The average fixed-rate term in the total debt portfolio should be approximately 1 year, but is permitted to vary between 0.5 and 2.5 years. The fixed-rate term on borrowing may be adjusted through the use of interest rate swaps.
Currency risks:
SSAB’s currency exposure related to translation exposure, largely relates to the translation risk regarding net assets of foreign subsidiaries. This exposure is partly hedged through borrowing in foreign currency, so-called equity hedge. Exceptions are made in the case of small amounts, e.g. for equity in foreign sales companies. The objective with the equity hedge is to minimize the translation impact on the net debt/equity ratio. The Swedish krona (SEK) is the base currency. In order to handle the transaction risk, part of the commercial currency flows qualifying for hedge accounting (currently purchases of coal and ore in USD) is hedged. Major investments decided upon in foreign currency are hedged in their entirety. Other commercial currency flows that arise in connection with purchases and sales in foreign currency are short term in nature and thus no hedging takes place; instead, they are exchanged on the spot market. The net currency inflow in 2018 was SEK 4.7 (6.8) billion. The Group’s most important currency flows are shown in the diagram.
CREDIT RISK Credit risk’ means the risk of losses due to the Group's customers or counterparties in financial contracts being unable to perform their payment obligations. Financial counterparties are selected based on Standard & Poor’s and Moody’s current ratings for long-term borrowing and taking into account the Group’s reciprocal commercial relations with the relevant counterparty. The minimum acceptable ratings are A- from Standard & Poor’s or A3 from Moody’s. Credit risks associated with accounts receivable and other claims are managed in each division and subsidiary, taking into account the Group’s credit policy.