This excerpt taken from the ICI 20-F filed Mar 31, 2006.
Liquidity and capital resources
Financing and interest rate risk
Debt is principally sourced from bonds, medium-term notes, commercial paper, securitised receivables and bank debt. The Groups borrowings are primarily raised centrally by Group finance companies and subsequently lent to operating subsidiaries on commercial terms. The Group borrows in the major global debt markets in a range of currencies at both fixed and floating rates of interest and uses derivatives to generate the desired currency and interest rate profile of borrowings.
The Groups exposure to interest rate fluctuations on its borrowings is managed through the use of interest rate swaps and forward rate agreements. The Groups target is to maintain interest cover above four times. It maintains its debt book principally in floating rates, but fixes debt, selectively, to support its policy of trying to ensure that interest cover does not fall below four times. Notes 22 and 30 relating to the Group accounts show the overall interest rate structure of the Groups borrowings at the end of 2005. The currency disposition of the borrowings is used as a partial, long-term hedge of the cash flows arising from investments overseas and as a hedge against future business disposal proceeds due to be received. Consequently a large part of the Groups borrowings (after taking account of swaps and forward contracts) are denominated in US dollars. Details of the currency mix of borrowings are shown in note 30 relating to the Group accounts. In addition, in determining currency mix, the Group takes into account the availability and costs of funds, and the sensitivity of Group gearing and earnings ratios to exchange rate movements.
The maturity of loans is shown in note 22 relating to the Group accounts. The Groups objective in determining borrowing maturity is to ensure a balance between flexibility, cost and the continuing availability of funds.
Funding policy aims to produce a reasonably even maturity profile for long-term debt up to five years maturity. The average maturity for long-term debt was 3.5 years at 31 December 2005.