FMPM 431 Borrowing

Intent

This procedure sets out the requirements for the approval, establishment, drawdown, repayment and reporting of monetary borrowings.

Definitions

Borrowing

Establishment

• Each year, the Chief Financial Officer, determines the need for borrowing in the context of the Capital and Infrastructure Planning process. The indicative borrowing requirements are included in the triennium budget and are approved as part of the budget approval process.

• When the need to borrow for a specific project within the approved budget arises, the Chief Financial Officer makes application to the Finance Committee for approval to enter into negotiations for borrowing in respect of the specific project.

• Finance Committee:

  • reviews the justification for and requirement to  borrow;

  • identifies a maximum borrowing limit; and

  • recommends the borrowing to Council.

• Upon approval by Council, the Chief Financial Officer obtains the sanction of the Queensland Treasurer to enter into negotiations for borrowing.

• Once the borrowings have been approved by QTC, the loan agreement document should be forwarded to the Commercial Services Office for review.  The agreement should then be treated as a standard contract and signed in accordance with section 4.1 of the Delegations Policy.

• In April each year, the University, through the Queensland Office of Higher Education makes application to the Queensland Treasurer for approval to borrow under the State Borrowing Program.  Whilst the application requires indicative figures for the current and three (3) future years, Queensland Treasury provide the flexibility to renegotiate both current and future year requirements.  For Queensland Treasury purposes, the year commences 1 July and ends 30 June.

• It is the Queensland Treasurer’s responsibility to sanction the maximum long term borrowing any Statutory Body may negotiate.  The sanctioned amount becomes that Body’s Approved Borrowing Program. Any shortfall between the amount sanctioned for a year and the amount borrowed by the body during that year can be "rolled over" to the following year, with the Queensland Treasurer’s approval.

• After approval by the Queensland Treasurer of the University's maximum borrowing program for the financial year, the University must provide evidence to the Queensland Office of Higher Education prior to the drawing down of any funds allocated to the University, that:

  • projects for which the borrowings have been sought have been the subject of appropriate economic evaluation; and

  • the University has the financial capacity to service its total borrowings.

Established Facilities

• Borrowing facilities have been established with:

  • the Queensland Treasury Corporation (QTC) in accordance with Finance Committee Directive 430 - Borrowing. These facilities include a Long Term Borrowing facility within the QTC Pool Participation and an Overdraft facility of $3 million within the QTC Temporary Funding Facility;   and

  • the Queensland State Government under the Smart State Facility which provides interest free loans on favourable terms.

Long Term Borrowing Facility

• Under the long term facility, monies are borrowed for specific purposes, identifiable within the Capital and Infrastructure Plan.

• The maximum Long Term Borrowing amount the University may borrow in any financial year is limited to the lesser of:

  • the maximum amount that has been approved by Council for that financial year; or

  • the maximum amount approved by the Queensland Treasurer under the Approved Borrowing Program.

Advances / Drawdowns

• Finance Committee has resolved that all drawings under the QTC Long Term Borrowing Facility be approved by two (2) signatories.  Current signatories are:

  • Vice-Chancellor;

  • Executive Director, Finance and Resource Planning;

  • Provost; or

  • Chief Financial Officer.

Periodic Debt Service Payment

• For the initial and subsequent drawdowns, QTC calculates the Periodic Debt Service Payment, to be paid by the University.

• The Periodic Debt Service Payment is the quarterly contribution estimated by QTC to amortise all drawdowns and interest charges over the estimated term of the loan.  The Periodic Debt Service Payments are subject to annual review.

Early Discharge of Borrowings

• The University may repay the whole or any part of the amount outstanding under the QTC Long Term Borrowing facility at any time earlier than the expiration of the estimated term, subject to payment of any additional costs incurred by QTC and giving the required period of notice.

Fees and Charges

• QTC charges an administration fee in accordance with its fee scale as set from time to time. The administration fee is charged quarterly on the daily balances during the quarter.

• Any costs relating to the University's participation with QTC including legal and stamp duty costs, shall be borne by the University.

• The Treasury Legislation Amendment Act enables the State to impose a dividend on QTC's liability management operations and allows QTC to recover that dividend from its borrowers. The Act also provides that the Queensland Treasurer may charge a fee for guarantees given in respect of financial arrangements undertaken with institutions other than QTC.  The effect is that unless borrowing is undertaken on a non-guaranteed, non-recourse basis to the State, there will be either a guarantee fee or a performance dividend payable by the University in respect of any borrowing.

• Performance dividends are charged, on Long Term Borrowing, annually in arrears with the University's debt pool account being debited in the next financial year.  The University may deposit funds to cover these dividends as an alternative to the dividend being capitalised as part of the debt pool.

Disclosure

• The balance of the Long Term Borrowing facility is recorded in the books and records of the University at book value. Each quarter QTC reports to the University the book value and the market value of the debt of the QTC Long Term Borrowing facility including any Periodic Debt Service adjustments.  The difference between the book value and the market value of the debt represents the penalty/credit to the University if the University wished to payout the loan on that quarter end date.

• The Queensland Office of Higher Education requires details of the total drawdowns and principal repayments in respect of the QTC Long Term Borrowing Facility on a quarterly basis.

Overdraft Facility

• This facility involves QTC making available to the University, until terminated by either party, short term funding up to the facility limit, on a revolving basis, on specific terms and conditions.

Facility Limit

• The overdraft facility limit available to the University (currently $3.0 million) is the lesser of:

  • the maximum amount that has been approved by Council; or

  • the maximum amount approved by the Queensland Treasurer.

• The facility requires no further approval during the duration of its operation.  Overdraft facilities do not form part of a Statutory Bodies' Approved Borrowing Program.

Drawdowns and Repayments

• Finance Committee has resolved that:

  • each drawdown of the overdraft facility be authorised by two (2) signatories.  Current signatories are:

    • Vice-Chancellor;

    • Executive Director, Finance and Resource Planning;

    • Provost; or

    • Chief Financial Officer.

  • and the repayment of overdraft facility drawdowns be a first charge on temporary surplus funds.

• As the facility is revolving in nature there is no limit on the frequency or number of drawdowns and repayments which the University may make during the facility term.

Termination of Facility

• The University may terminate the facility on not less than one month's written notice expiring at the end of any calendar month.

• QTC may terminate the facility on not less than six (6) months written notice expiring at the end of any calendar month.

Fees and Charges

• QTC charges a facility fee in accordance with its scale as set from time to time.

• Any costs relating to the University's participation with QTC including legal and stamp duty costs, shall be borne by the University.

Disclosure

• The balance of the Overdraft facility shall be recorded in the books and records of the University at book value.

• The Queensland Office of Higher Education requires details of the total drawdowns in respect of the Overdraft Facility on a quarterly basis.

Interest Free Loans

• Loan agreements have been negotiated with the Queensland Government whereby monies are borrowed for specific projects.  These loans have a ten (10) year moratorium on repayments and one third of the loan is forgiven subject to conditions in the contract being satisfied.

Drawdowns, Repayments, Prepayments

• All terms and conditions are contained in individual loan agreements.  This includes the amount and timing of drawdowns, repayment schedule, and conditions relating to early repayment of loan.

Fees and Charges

• There will be no interest expense or fees payable on these loans.

Disclosure

• Under Australian Accounting Standards, the University is required to record the loan balance in the statement of financial position at its net present value.

For enquiries in relation to this Finance Procedure please contact farp.finance@jcu.edu.au

Administration

NOTE: Printed procedure of this policy are uncontrolled, and currency can only be assured at the time of printing.

Approval Details

Revision History