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Financial Instruments
 12 Months Ended
Dec. 31, 2017
Disclosure Of Financial Instruments [Abstract]  
Financial Instruments

38.

FINANCIAL INSTRUMENTS

Categories of Financial Instruments

 

 

 

December 31

 

 

 

2016

 

 

2017

 

 

 

NT$

 

 

NT$

 

 

 

(In Millions)

 

Financial assets

 

 

 

 

 

 

 

 

Measured at FVTPL

 

 

 

 

 

 

 

 

Held for trading

 

$

—

 

 

$

—

 

Held-to-maturity financial assets

 

 

2,140

 

 

 

—

 

Loans and receivables (Note a)

 

 

70,040

 

 

 

68,983

 

Available-for-sale financial assets

 

 

4,764

 

 

 

5,751

 

Financial liabilities

 

 

 

 

 

 

 

 

Measured at FVTPL

 

 

 

 

 

 

 

 

Held for trading

 

 

1

 

 

 

1

 

Hedging derivative financial liabilities

 

 

1

 

 

 

1

 

Measured at amortized cost (Note b)

 

 

40,553

 

 

 

39,725

 

 

 

Note a:

The balances included cash and cash equivalents, trade notes and accounts receivable, receivables from related parties, other current monetary assets, other financial assets and refundable deposits (classified as other noncurrent assets) which were loans and receivables.  Please refer to Notes 7, 11, 14, 20 and 40.

 

Note b:

The balances included short-term loans, trade notes and accounts payable, payables to related parties, partial other payables, customers’ deposits and long-term loans which were financial liabilities carried at amortized cost.  Please refer to Notes 22, 23, 24, 25 and 40.

Financial Risk Management Objectives

The main financial instruments of the Company include equity and debt investments, accounts receivable, accounts payable and loans.  The Company’s Finance Department provides services to its business units, co-ordinates access to domestic and international capital markets, monitors and manages the financial risks relating to the operations of the Company through internal risk reports which analyze exposures by degree and magnitude of risks.  These risks include market risk (including foreign currency risk, interest rate risk and other price risk), credit risk, and liquidity risk.

The Company seeks to minimize the effects of these risks by using derivative financial instruments to hedge risk exposures.  The use of financial derivatives is governed by the Company’s policies approved by the Board of Directors.  Those derivatives are used to hedge the risks of exchange rate fluctuation arising from operating or investment activities.  Compliance with policies and risk exposure limits is reviewed by the Company’s Finance Department on a continuous basis.  The Company does not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes.

Chunghwa reports the significant risk exposures and related action plans timely and actively to the audit committee and to the Board of Directors if needed.

 

a.

Market risk

The Company is exposed to market risks of changes in foreign currency exchange rates and interest rates.  The Company uses forward exchange contracts to hedge the exchange rate risk arising from assets and liabilities denominated in foreign currencies.

There were no changes to the Company’s exposure to market risks or the manner in which these risks are managed and measured.

 

1)

Foreign currency risk

The carrying amounts of the Company’s foreign currency denominated monetary assets and monetary liabilities at the balance sheet dates were as follows:

 

 

 

December 31

 

 

 

2016

 

 

2017

 

 

 

NT$

 

 

NT$

 

 

 

(In Millions)

 

Assets

 

 

 

 

 

 

 

 

USD

 

$

5,327

 

 

$

5,584

 

EUR

 

 

14

 

 

 

28

 

SGD

 

 

106

 

 

 

63

 

RMB

 

 

30

 

 

 

3

 

JPY

 

 

13

 

 

 

36

 

Liabilities

 

 

 

 

 

 

 

 

USD

 

 

4,238

 

 

 

4,964

 

EUR

 

 

968

 

 

 

1,323

 

SGD

 

 

1

 

 

 

96

 

RMB

 

 

—

 

 

 

—

 

JPY

 

 

10

 

 

 

12

 

 

The carrying amounts of the Company’s derivatives with exchange rate risk exposures at the balance sheet dates were as follows:

 

 

 

December 31

 

 

 

2016

 

 

2017

 

 

 

NT$

 

 

NT$

 

 

 

(In Millions)

 

Assets

 

 

 

 

 

 

 

 

USD

 

$

—

 

 

$

—

 

Liabilities

 

 

 

 

 

 

 

 

USD

 

 

—

 

 

 

—

 

EUR

 

 

2

 

 

 

1

 

 

Foreign currency sensitivity analysis

The Company is mainly exposed to the fluctuations of the currencies listed above.  

The following table details the Company’s sensitivity to a 5% increase and decrease in the functional currency against the relevant foreign currencies.  5% is the sensitivity rate used when reporting foreign currency risk internally to key management personnel and represents management’s assessment of the reasonably possible changes in foreign exchange rates.  The sensitivity analysis includes only outstanding foreign currency denominated monetary items and forward exchange contracts.  A positive number below indicates an increase in pre-tax profit or equity where the functional currency weakens 5% against the relevant currency.  

 

 

 

Year Ended December 31

 

 

 

2015

 

 

2016

 

 

2017

 

 

 

NT$

 

 

NT$

 

 

NT$

 

 

 

(In Millions)

 

Profit or loss

 

 

 

 

 

 

 

 

 

 

 

 

Monetary assets and liabilities (a)

 

 

 

 

 

 

 

 

 

 

 

 

USD

 

$

21

 

 

$

54

 

 

$

31

 

EUR

 

 

(62

)

 

 

(48

)

 

 

(65

)

SGD

 

 

5

 

 

 

5

 

 

 

(2

)

RMB

 

 

2

 

 

 

1

 

 

 

—

 

JPY

 

 

12

 

 

 

—

 

 

 

1

 

Derivatives (b)

 

 

 

 

 

 

 

 

 

 

 

 

USD

 

 

1

 

 

 

3

 

 

 

6

 

EUR

 

 

33

 

 

 

8

 

 

 

3

 

Equity

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives (c)

 

 

 

 

 

 

 

 

 

 

 

 

EUR

 

 

15

 

 

 

5

 

 

 

7

 

 

 

a)

This is mainly attributable to the exposure to foreign currency denominated receivables and payables of the Company outstanding at the balance sheet dates.

 

b)

This is mainly attributable to the forward exchange contracts.

 

c)

This is mainly attributable to the changes in the fair value of derivatives that are designated as cash flow hedges.

For a 5% strengthening of the functional currency against the relevant currencies, it would have the equal but opposite effect on the pre-tax profit or equity for the amounts shown above.

 

2)

Interest rate risk

The carrying amounts of the Company’s exposures to interest rates on financial assets and financial liabilities at the balance sheet dates were as follows:

 

 

 

December 31

 

 

 

2016

 

 

2017

 

 

 

NT$

 

 

NT$

 

 

 

(In Millions)

 

Fair value interest rate risk

 

 

 

 

 

 

 

 

Financial assets

 

$

28,303

 

 

$

25,911

 

Cash flow interest rate risk

 

 

 

 

 

 

 

 

Financial assets

 

 

6,582

 

 

 

6,715

 

Financial liabilities

 

 

1,738

 

 

 

1,670

 

 

Interest rate sensitivity analysis

The sensitivity analyses below have been determined based on the exposure to interest rates for non-derivative instruments at the end of the reporting period.  A 25 basis point increase or decrease is used when reporting interest rate risk internally to key management personnel and represents management’s assessment of the reasonably possible change in interest rates.

If interest rates had been 25 basis points higher/lower and all other variables were held constant, the Company’s pre-tax income would increase/decrease by $12 million, $12 million and $13 million for the years ended December 31, 2015, 2016 and 2017, respectively.  This is mainly attributable to the Company’s exposure to floating interest rates on its financial assets and short-term and long-term loan.

 

3)

Other price risk

The Company is exposed to equity price risks arising from listed equity investments.  Equity investments are held for strategic rather than trading purposes.  The management managed the risk through holding various risk portfolios.  Further, the Company assigned finance and investment departments to monitor the price risk.

Equity price sensitivity analysis

The sensitivity analyses below have been determined based on the exposure to equity price risks at the end of the reporting period.

If equity prices of listed equity securities had been 5% higher/lower, other comprehensive income would have increased/decreased by $162 million, $126 million and $156 million as a result of the changes in fair value of available-for-sale assets for the years ended December 31, 2015, 2016 and 2017, respectively.

 

b.

Credit risk

Credit risk refers to the risk that a counterparty would default on its contractual obligations resulting in financial loss to the Company.  The maximum credit exposure of the aforementioned financial instruments is equal to their carrying amounts recognized in consolidated balance sheet as of the balance sheet date.

The Company has large trade receivables outstanding with its customers.  A substantial majority of the Company’s outstanding trade receivables are not covered by collateral or credit insurance.  The Company has implemented ongoing measures including enhancing credit assessments and strengthening overall risk management to reduce its credit risk.  While the Company has procedures to monitor and limit exposure to credit risk on trade receivables, there can be no assurance such procedures will effectively limit its credit risk and avoid losses.  This risk is heightened during periods when economic conditions worsen.

As the Company serves a large number of unrelated consumers, the concentration of credit risk was limited.

 

c.

Liquidity risk

The Company manages and maintains sufficient cash and cash equivalent position to support the operations and reduce the impact on fluctuation of cash flow.

 

1)

Liquidity and interest risk tables

The following tables detailed the Company’s remaining contractual maturity for its non-derivative financial liabilities with agreed repayment periods.  The tables had been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Company is required to pay.

 

 

 

Weighted

Average

Effective

Interest

Rate (%)

 

 

Less Than

1 Month

 

 

1-3 Months

 

 

3 Months

to 1 Year

 

 

1-5 Years

 

 

More than

5 Year

 

 

Total

 

 

 

 

 

 

 

NT$

 

 

NT$

 

 

NT$

 

 

NT$

 

 

NT$

 

 

NT$

 

 

 

 

 

 

 

(In Millions)

 

December 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-derivative financial liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-interest bearing

 

 

—

 

 

$

43,975

 

 

$

—

 

 

$

2,015

 

 

$

4,610

 

 

$

—

 

 

$

50,600

 

Floating interest rate instruments

 

 

1.00

 

 

 

—

 

 

 

38

 

 

 

100

 

 

 

1,600

 

 

 

—

 

 

 

1,738

 

 

 

 

 

 

 

$

43,975

 

 

$

38

 

 

$

2,115

 

 

$

6,210

 

 

$

—

 

 

$

52,338

 

December 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-derivative financial liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-interest bearing

 

 

—

 

 

$

41,884

 

 

$

—

 

 

$

3,197

 

 

$

4,671

 

 

$

—

 

 

$

49,752

 

Floating interest rate instruments

 

 

0.97

 

 

 

50

 

 

 

—

 

 

 

20

 

 

 

1,600

 

 

 

—

 

 

 

1,670

 

 

 

 

 

 

 

$

41,934

 

 

$

—

 

 

$

3,217

 

 

$

6,271

 

 

$

—

 

 

$

51,422

 

 

The following table detailed the Company’s liquidity analysis for its derivative financial instruments.  The table had been drawn up based on the undiscounted gross inflows and outflows on those derivatives that require gross settlement.

 

 

 

Less Than

1 Month

 

 

1-3 Months

 

 

3 Months to

1 Year

 

 

1-5 Years

 

 

Total

 

 

 

NT$

 

 

NT$

 

 

NT$

 

 

NT$

 

 

NT$

 

 

 

(In Millions)

 

December 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross settled

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forward exchange contracts

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Inflows

 

$

55

 

 

$

267

 

 

$

—

 

 

$

—

 

 

$

322

 

Outflows

 

 

55

 

 

 

269

 

 

 

—

 

 

 

—

 

 

 

324

 

 

 

$

—

 

 

$

(2

)

 

$

—

 

 

$

—

 

 

$

(2

)

December 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross settled

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forward exchange contracts

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Inflows

 

$

125

 

 

$

173

 

 

$

36

 

 

$

—

 

 

$

334

 

Outflows

 

 

126

 

 

 

174

 

 

 

36

 

 

 

—

 

 

 

336

 

 

 

$

(1

)

 

$

(1

)

 

$

—

 

 

$

—

 

 

$

(2

)

 

 

2)

Financing facilities

 

 

 

December 31

 

 

 

2016

 

 

2017

 

 

 

NT$

 

 

NT$

 

 

 

(In Millions)

 

Unsecured bank loan facility

 

 

 

 

 

 

 

 

Amount used

 

$

118

 

 

$

90

 

Amount unused

 

 

46,219

 

 

 

45,749

 

 

 

$

46,337

 

 

$

45,839

 

Secured bank loan facility

 

 

 

 

 

 

 

 

Amount used

 

$

1,620

 

 

$

1,600

 

Amount unused

 

 

200

 

 

 

1,910

 

 

 

$

1,820

 

 

$

3,510