Note 33:  Financial Instruments (continued)

(d) Credit risk management (continued)

1. Kiwibank mortgages consist mainly of residential lending. Therefore these financial assets have been classified as other individual for the purposes of credit risk.

(e) Liquidity risk management

Liquidity risk refers to the loss due to the lack of liquidity preventing quick or cost-effective liquidation of products, positions or portfolios.

Liquidity risk is managed on an individual entity basis generally by maintaining adequate reserves, banking facilities and reserve borrowing facilities, by continuously monitoring forecast and actual cash flows.

The following table details the Government's remaining contractual maturity for its financial liabilities. The table has been drawn up based on:

• the undiscounted cash flows of financial liabilities based on the earliest date on which the Government can be required to pay, and
• both interest and principal cash flows.

The Government has access to financing facilities, of which the total unused amount at 30 June 2009 was $1,220 million (2008: $1,044 million). The Government expects to meet its obligations from operating cash flows, from the results of bond tenders, and proceeds of maturing financial assets.

Note 34:  Acquisition of Toll (NZ) Limited

On 1 July 2008, negotiations were completed and an agreement was signed for the purchase of 100% of the shares in Toll (New Zealand) Limited. Prior to the acquisition, assets and operations not integral to the rail operation were separated out of Toll (New Zealand) Limited. On acquisition by the Government, the company was renamed KiwiRail Holdings Limited (KiwiRail). The cost of acquisition of the company was $690 million, settled in cash on 1 July.

Ownership of the rail business is intended to place the Government in a better position to integrate rail planning and funding with its wider transport policy, and to facilitate appropriate capital investment in the national rail network.

On 1 October 2008, the Crown sold the shares in KiwiRail to the New Zealand Railway Corporation (NZRC). The transfer price was based on the fair value of the assets and liabilities held by KiwiRail as at 1 October 2008. The valuation was performed by PricewaterhouseCoopers and completed in May 2009.

Based on the fair value exercise as at 1 October 2008, it has been calculated that the fair value of the assets acquired and liabilities assumed through this purchase on acquisition (1 July) was $370 million. No goodwill has been recognised and the difference between the assessment of the fair value of the assets acquired and liabilities assumed and the cost of acquisition has been charged to the statement of financial performance.

The effect of this acquisition on the government's assets and liabilities on acquisition date was:

In the year ended 30 June 2009, revenue earned by KiwiRail Holdings Limited of $652 million and an operating surplus of $16 million (excluding the write-down on acquisition) has been included in the financial statements of the Government.