(37) Financial debt / capital management

(37) Financial debt/Capital management

The composition of financial debt as well as a reconciliation to net financial debt are presented in the following table:

The repayment profile of the bonds was as follows:

The hybrid bonds issued by Merck KGaA, Darmstadt, Germany, are bonds for which the rating agencies Standard & Poor’s, Moody’s, and Scope have given equity credit treatment to half of the issuances, thus making the issuances more favorable to the Group’s credit rating than traditional bond issues. The bonds are recognized in full as financial liabilities in the balance sheet.

68.3% of the tranche of the hybrid bond 2014/2074 with an original nominal value of € 1 billion with a first optional redemption date in June 2021 was repaid ahead of schedule in the fiscal year.

The financial debt was not secured by liens or similar forms of collateral. The loan agreements do not contain any financial covenants. The average borrowing cost as of the balance sheet date was 1.6% (December 31, 2019: 2.5%).

Information on liabilities to related parties can be found in Note (45) “Related party disclosures”.

Capital management

The objective of capital management is to ensure the necessary financial flexibility in order to maintain long-term business operations and realize strategic options. Maintaining a stable investment grade rating, ensuring liquidity, limiting financial risks, as well as optimizing the cost of capital are the objectives of our financial policy and set important framework conditions for capital management. The responsible committees decide on the target capital structure of the balance sheet, the appropriation of net retained profit, and the dividend level. In this context, net financial debt is one of the leading capital management indicators.

Traditionally, the capital market represents a major source of financing for the Group, for instance via bond issues. As of December 31, 2020, there were liabilities of € 4.05 billion from a debt issuance program most recently renewed in 2020 (December 31, 2019: € 3.90 billion). In addition, the Group had access to a commercial paper program to meet short-term capital requirements with a volume of € 2 billion, of which € 200 million had been utilized as of December 31, 2020 (December 31, 2019: € 205 million).

Loan agreements represent a further source of financing for the Group. At the balance sheet date, the bank financing commitments vis-à-vis the Group were as follows:

There are no indications that the availability of extended credit lines was restricted.