Crikey, in reference to your piece on Macquarie Bank chairman David Clarke and
the ARU last week, we make the following points.

There was no conflict with David’s position at the ARU and the hedging contract
entered into with Macquarie Bank. David Clarke was not involved in the
negotiations regarding this particular transaction. The choice of which bank
would carry out the transaction was put to a competitive tender, and David
exempted himself during these proceedings.

In fact the ARU has actually benefitted from this structure since the time of
the article you have quoted. The original article was inaccurate. The position
was restructured several times to give the current favourable strike rate of
US61.44c. The ARU benefitted significantly by shouting lower the put strike
rate when the Australian dollar fell to all time lows.

Under this structure the ARU was able to trade lower when the dollar went to as
low as 50c (as opposed to a vanilla forward forex contract). The ARU now has
the benefit of exchanging at US61.4c now the dollar is in the high 70s. This
has made the ARU money.

This is a zero cost structure. By definition, by being a zero cost structure,
the structure is worth zero to both parties at the time it is entered into. The
transaction protected the ARU from a substantial risk relating to their revenue
stream being in US dollars while they operated as an Australian dollar
business. For Macquarie there is no offsetting underlying need to hold this
transaction so we hedge out our position at the zero market value. Because our
position is hedged from that time onwards we do not have any further cash flow
losses or profits relating to these positions.

The ARU understands the transaction clearly and has expressed its satisfaction
with this structure many times to us, both during David’s tenure as a director
and afterwards

Finally, the ARU did not hedge the full contract with Macquarie. In fact it was
only 10% of the US dollar flows for a period of six years of the full ten
year contract.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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