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Alliance Unichem frustrated by IAS39

Pharmaceutical distributor Alliance Unichem has detailed the extent to which IAS39 will hamper its ability to hedge its foreign currency exposure.

At the European company's announcement of its 2004 results, finance director George Fairweather said that if IAS39 is implemented next year it will prevent the company from hedging any of its dollar-denominated debt.

Because the debt is sold through US private placements and then swapped back from dollars into euros, a perfect hedge would be impossible and so any derivatives used to cover the currency exposure would risk adding volatility to the profit and loss account.

Fairweather said: "Our need for dollar cover will increase in the next couple of years as a greater proportion of our capital becomes private placement debt. But because we would be unable to cover the appropriate swaps and options we feel it would be misleading to take them out under IAS39. On the other hand, it would be rather imprudent not to cover our exposure at all."

But Fairweather was not duly concerned with this problem, as he believes IAS39 will not be approved by the EU to come into force on January 1 2006 in its current form: "The standard simply does not make sense, which is why the EU is so against it.

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