Shareholders' borrowings and financial flexibility

Core structural borrowings of shareholder-financed operations at 30 June 2008 totalled £2,526 million, compared with £2,492 million at the end of 2007. This increase reflected exchange movements of £30 million and other adjustments of £4 million.

After adjusting for holding company cash and short-term investments of £1,498 million, net core structural borrowings at 30 June 2008 were £1,028 million compared with £1,036 million at 31 December 2007. This reflects the net cash inflow of £86 million, exchange movements of £74 million and other adjustments of £4 million.

Core structural borrowings at 30 June 2008 included £2,115 million at fixed rates of interest with maturity dates ranging from 2009 to perpetuity. Of the core borrowings, £890 million were denominated in US dollars, to hedge partially the currency exposure arising from the Group's investment in Jackson.

Prudential has in place an unlimited global commercial paper programme. At 30 June 2008, commercial paper of £280 million, US$3,361 million and €436 million was in issue under this programme. Prudential also has in place a £5,000 million medium-term note (MTN) programme. At 30 June 2008, subordinated debt outstanding under this programme was £435 million and €520 million, and senior debt outstanding was US$12 million. In addition, the holding company has access to £1,600 million committed revolving credit facilities, provided in equal tranches of £100 million by 16 major international banks, renewable in December 2009, and an annually renewable £500 million committed securities lending liquidity facility. Apart from a small test drawdown, these facilities have not been drawn on during the first half of the year. There are no amounts outstanding under the committed credit facilities at 30 June 2008. The commercial paper programme, the MTN programme, the committed revolving credit facilities and the committed securities lending liquidity facility are available for general corporate purposes and to support the liquidity needs of the holding company.

The Group's core debt is managed to be within a target level consistent with its current debt ratings. At 30 June 2008, the gearing ratio (core debt, net of cash and short-term investments, as a proportion of EEV shareholders' funds plus core debt) was 6.9 per cent compared with 6.6 per cent at 31 December 2007.

Prudential plc enjoys strong debt ratings from Standard & Poor’s, Moody’s and Fitch. Prudential long-term senior debt is rated A+ (stable outlook), A2 (stable outlook) and AA- (stable outlook) from Standard & Poor’s, Moody’s and Fitch respectively, while short-term ratings are A-1, P-1 and F1+.

Based on EEV basis operating profit from continuing operations and interest payable on core structural borrowings, interest cover was 18.4 times in the first half of 2008 compared with 16.1 times in the first half of 2007.