15 Net debt

All the above debt is effectively Sterling based except for £64.6m (2003: £120.7m) of Euro debt of which £31.8m (2003: £57.4m) is fixed and the balance floating. At 31 March 2004 the weighted average interest rate of the Sterling fixed rate debt is 6.72% (2003: 6.78%). The weighted average period for which the rate is fixed is 17.9 years (2003: 19.3 years). The Irredeemable Convertible Bond is treated as having a life of 100 years for this calculation. The weighted average interest rate for the Euro fixed rate debt is 4.25% (2003: 4.00%) and the weighted average period for which the rate is fixed is 1.4 years (2003: 1.9 years). The floating rate debt is set for periods of the company’s choosing based on the relevant LIBOR (or similar) rate.

Total borrowings where any instalments are due after five years is £3,266.6m (2003: £2,866.3m).

View details of the financing policy and risk management.

The Differences are shown before any tax relief. The difference between book value and market value on the Convertible Bonds arises principally from the British Land share price.
In accordance with Accounting Standards the book value of debt is par value net of unamortised issue costs, except for debts assumed on corporate acquisitions where the book value is the fair value of the debt. Short-term debtors and creditors have been excluded from the disclosures (other than the currency disclosures). The valuations of the Broadgate and Meadowhall Notes have been undertaken by Morgan Stanley. The valuations of 135 Bishopsgate Securitisations 2018 have been undertaken by The Royal Bank of Scotland. The valuations of other fixed rate debt and convertible debt have been undertaken by UBS. The bank debt has been valued assuming it could be renegotiated at contracted margins. The derivatives have been valued by the independent treasury advisor, Record Currency Management.

The Group uses interest rate swaps to manage its interest rate profile. Changes in the fair value of instruments used as hedges are not recognised in the financial statements until the hedged position matures. Of the unrecognised amount at 31 March 2004, £0.2m gains and £1.8m losses are expected to be realised in the next financial year (2003: £nil gains; £nil losses) and the balance in subsequent years. Net costs of £5.7m (2003 costs: £6.5m) were recognised in the current year, comprising receipts of £10.1m (2003: £7.0m) and costs of £15.8m (2003: £13.5m).

6% Subordinated Irredeemable Convertible Bonds
The £150m 6% Subordinated Irredeemable Convertible Bonds carry a Bondholder conversion right exercisable at any time into ordinary shares of the company at 500p (2003: 500p) per share. The company has the right to redeem the Bonds at par if after 9 April 2001 the average ordinary share price attains 130% of the conversion price for a 30 day period and after 9 April 2008 without conditions. The company has the right to redeem the remaining Bonds where 75% of the Bonds have been converted or purchased or cancelled. If the company elects to redeem the Bonds, Bondholders have the right to convert into the underlying ordinary shares. The company has an option to exchange the Bonds for 6% Convertible Preference Shares with the same conversion terms. The company has a further option to exchange the preference shares back to Convertible Bonds after these preference shares have been in issue for six months. On conversion of the entire issue into ordinary shares of the company, 30.0 million ordinary shares would be issued.

Balance sheet adjustments
In accordance with Financial Reporting Standard 4 ‘Capital Instruments’, debt issue costs, less premiums received, have been deducted from the principal amount of debt in arriving at balance sheet values. At 31 March 2004 the total amount of the adjustment was £49.1m (2003: £57.5m) as detailed below:

In accordance with Financial Reporting Standard 7 ‘Fair Values In Acquisition Accounting’, on a corporate acquisition, debt is recorded in the balance sheet at fair value. At 31 March 2004 the total amount of the fair value adjustment arising on the Group’s acquisition of the remaining 50% interest in BL Universal PLC was £13.3m (2003: £nil). The adjustment increases secured debt.

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