XML 163 R41.htm IDEA: XBRL DOCUMENT

Derivative financial instruments

12 Months Ended

Dec. 31, 2019

35.	Derivative financial instruments

The fair value of derivative financial instruments at 31 December 2019 and 2018 are attributable to the following:


	31 December 2019				31 December 2018
	Assets		Liabilities		Assets		Liabilities
Held for trading		443,880		72,539		709,617		131,097
Derivatives used for hedging		483,448		—		730,924		—

Total		927,328		72,539		1,440,541		131,097

At 31 December 2019, the total held for trading derivative financial assets of TL 845,513(31 December 2018: TL 1,356,062) also includes a net accrued interest expense of TL 81,815(31 December 2018: TL 84,479) and the total held for trading derivative financial liabilities of TL 86,617 (31 December 2018: TL 165,265) also includes a net accrued interest expense of TL 14,078(31 December 2018: TL 34,168).

Derivatives used for hedging

Participating cross currency swap and cross currency swap contracts

The notional amount and the fair value of participating cross currency swap and cross currency swap contracts for hedging purposes at 31 December 2019 are as follows:


Sell			Buy
Currency	Notional amount		Currency		Notional amount		Fair Value		Maturity
Participating cross currency swap contracts

TL		1,820,280		EUR		433,400		148,066	23 October 2025
TL		257,478		EUR		56,004		7,675	22 April 2026
TL		85,593		USD		18,668		21,581	22 April 2026
TL		145,000		USD		50,000		97,030	16 September 2020
TL		128,833		USD		33,333		57,280	16 September 2020
TL		97,833		USD		33,333		63,358	16 September 2020
TL		64,667		USD		16,667		28,394	16 September 2020
TL		245,951		USD		46,670		9,893	22 April 2026
Cross currency swap contracts

TL		115,628		RMB		189,107		50,171	22 April 2026

Derivatives used for hedge accounting financial assets								483,448

EUR 489,404 participating cross currency swap contracts includes TL 833,786 guarantees after the CSA agreement.

Held for trading

Cross currency swap, participating cross currency swap, FX swap and option contracts

The notional amount and the fair value of cross currency swap, participating cross currency swap, FX swap and option contracts for hedging purposes at 31 December 2019 are as follows:


Sell			Buy
Currency	Notional amount		Currency	Notional amount		Fair Value		Maturity
Cross currency swap contracts
TL		242,873	USD		70,500		178,968	16 September 2020
TL		269,451	USD		70,500		148,452	22 December 2020
TL		137,952	USD		24,000		5,625	20 March 2023
TL		138,816	USD		24,000		5,044	23 March 2023
TL		84,224	EUR		15,040		10,691	23 September 2021
TL		91,008	EUR		14,400		5,141	23 September 2021
TL		35,818	RMB		45,259		944	22 April 2026
Participating cross currency swap contracts
TL		172,772	EUR		28,002		9,904	22 April 2026
TL		171,092	EUR		28,002		21,355	22 April 2026
TL		227,750	EUR		37,336		8,705	22 April 2026
TL		77,520	EUR		12,000		1,097	16 September 2020
TL		261,912	USD		46,670		12,195	22 April 2026
TL		108,349	USD		18,668		3,930	22 April 2026
TL		135,051	USD		23,335		4,674	22 April 2026
TL		215,354	USD		37,336		7,813	22 April 2026
TL		174,000	USD		30,000		1,506	15 June 2026
TL		186,050	USD		32,669		9,936	22 April 2026
FX swap contracts (*)
USD		20,000	TL		117,860		67	27 February 2020
USD		20,000	TL		117,900		51	27 February 2020
Option contracts
EUR		25,000	USD		28,038		186	3 January 2020
USD		50,000	TL		275,000		11	3 January 2020

Held for trading derivative financial assets							436,295

(*)

There will be a purchase of USD 40,000 on 27 May 2020 in exchange for TL 241,046 in terms of the FX swap contract dated 27 November 2019.

Currency forward contracts

The notional amount and the fair value of currency forward contracts for trading purposes at 31 December 2019 are as follows:


Buy
Currency	Notional amount		Fair Value		Maturity
USD		30,000		2,081		28 February 2020
USD		7,500		952		30 March 2020
USD		7,500		916		29 June 2020
USD		10,000		1,038		30 March 2020
USD		10,000		1,016		29 June 2020
USD		7,500		797		30 March 2020
USD		7,500		785		29 June 2020

Held for trading derivative financial assets				7,585

Held for trading

FX swap, interest swap and participating cross currency swap contracts

The notional amount and the fair value of FX swap, interest swap and participating cross currency swap contracts for hedging purposes at 31 December 2019 are as follows:


Sell			Buy
Currency	Notional amount		Currency		Notional amount		Fair Value			Maturity
FX swap contracts
EUR		50,000		USD		55,488		(3,005	)	07 January 2020
EUR		75,000		USD		83,232		(4,512	)	07 January 2020
EUR		175,000		USD		194,560		(8,508	)	08 January 2020
EUR		50,000		USD		55,588		(2,432	)	08 January 2020
EUR		50,000		USD		55,588		(2,434	)	08 January 2020
EUR		85,000		USD		94,397		(4,748	)	08 January 2020
EUR		90,000		USD		100,492		(2,301	)	21 January 2020
EUR		20,000		USD		22,332		(510	)	21 January 2020
EUR		175,000		USD		195,346		(4,875	)	22 January 2020
EUR		50,000		USD		55,825		(1,448	)	28 January 2020
EUR		70,000		USD		78,154		(2,036	)	28 January 2020
EUR		90,000		USD		100,484		(2,612	)	28 January 2020
EUR		50,000		USD		55,825		(1,448	)	28 January 2020
TL		11,211		USD		1,860		(3	)	28 February 2020
Interest swap contracts
USD		93,340		USD		93,340		(7,802	)	22 April 2026
USD		46,670		USD		46,670		(3,101	)	22 April 2026
USD		37,336		USD		37,336		(959	)	22 April 2026
USD		32,669		USD		32,669		(849	)	22 April 2026
Participating cross currency swap contracts
TL		105,848		USD		18,668		(14,265	)	22 April 2026
TL		162,552		USD		28,002		(4,691	)	22 April 2026

Total held for trading derivative financial liabilities								(72,539	)

Derivatives used for hedging

Participating cross currency swap and cross currency swap contracts

The notional amount and the fair value of participating cross currency swap and cross currency swap contracts for hedging purposes at 31 December 2018 are as follows:


Sell			Buy
Currency	Notional amount		Currency		Notional amount		Fair Value		Maturity
Participating cross currency swap contracts
TL		1,650,000		EUR		500,000		208,462		23 October 2025
TL		275,850		EUR		60,000		64,670		22 April 2026
TL		435,000		USD		150,000		167,116		16 September 2020
TL		293,500		USD		100,000		108,777		16 September 2020
TL		194,000		USD		50,000		39,394		16 September 2020
TL		386,500		USD		100,000		79,688		16 September 2020
TL		91,700		USD		20,000		9,234		22 April 2026
Cross currency swap contracts
TL		123,878		RMB		202,600		53,583		22 April 2026

Derivatives used for hedge accounting financial assets								730,924

EUR 500,000 participating cross currency swap contracts includes TL 690,146 guarantees after CSA agreement.

Held for trading

FX swap, cross currency swap and participating cross currency swap contracts

The notional amount and the fair value of FX swap, cross currency swap, participating cross currency swap contracts for hedging purposes at 31 December 2018 are as follows:


Sell			Buy
Currency	Notional amount		Currency	Notional amount		Fair Value			Maturity
FX swap contracts
TL		266,760	USD		50,000		(3,715	)	2 January 2019
TL		266,510	USD		50,000		(3,465	)	2 January 2019
TL		719,996	USD		135,000		(9,774	)	2 January 2019
TL		212,736	USD		40,000		(2,300	)	2 January 2019
TL		265,925	USD		50,000		(2,880	)	2 January 2019
TL		1,366	USD		253		(48	)	19 March 2019
TL		4,199	USD		680		(939	)	16 January 2019
TL		5,681	USD		920		(1,277	)	22 January 2019
TL		6,040	EUR		1,000		(41	)	2 January 2019
USD		68,654	EUR		60,000		(861	)	15 January 2019
USD		11,462	EUR		10,000		(4	)	8 January 2019
Cross currency swap contracts
TL		6,159	USD		1,000		(912	)	28 January 2019
TL		6,159	USD		1,000		(910	)	24 January 2019
TL		130,488	USD		24,000		(9,365	)	20 March 2023
TL		268,200	USD		50,000		(5,791	)	14 June 2019
TL		128,436	USD		24,000		(2,652	)	19 June 2019
TL		169,368	EUR		24,000		(24,895	)	8 January 2019
TL		118,800	EUR		18,000		(22,051	)	23 September 2021
TL		111,732	EUR		18,867		1,920		14 February 2019
TL		185,100	EUR		30,000		(8,296	)	22 April 2026
TL		183,300	EUR		30,000		(8,642	)	22 April 2026
Participating cross currency swap contracts
TL		193,800	EUR		30,000		(7,148	)	16 September 2020
TL		113,400	USD		20,000		(17,051	)	22 April 2026

Total Held for trading derivative financial liabilities							(131,097	)

Held for trading

Cross currency swap contracts

The notional amount and the fair value of cross currency swap contracts for hedging purposes at 31 December 2018 are as follows:


Sell			Buy
Currency	Notional amount		Currency		Notional amount		Fair Value		Maturity
Cross currency swap contracts
TL		67,410		USD		18,000		27,928		28 January 2019
TL		95,550		USD		25,000		36,751		24 January 2019
TL		52,164		USD		14,620		27,870		16 July 2019
TL		69,744		USD		19,780		38,636		22 July 2019
TL		242,873		USD		70,500		160,594		16 September 2020
TL		269,451		USD		70,500		131,437		22 December 2020
TL		191,300		USD		50,000		74,095		13 February 2019
TL		98,625		EUR		25,000		57,161		13 June 2019
TL		203,600		EUR		50,000		109,610		23 July 2019
TL		97,997		EUR		21,500		37,825		19 December 2019
TL		105,280		EUR		18,800		7,710		23 September 2021

Total held for trading derivative financial assets								709,617

Fair value of derivative instruments and risk management

This section explains the judgments and estimates made in determining the fair values of the financial instruments that are recognized and measured at fair value in the financial statements. To provide an indication of the reliability of the inputs used in determining fair value, the Group has classified its financial instruments into the three levels prescribed under the accounting standards. An explanation of each level is as follows:

•

Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date;

•

Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and

•

Level 3 inputs are unobservable inputs for the asset or liability.


	Fair values
	31 December 2019		31 December 2018			Fair Value hierarchy		Valuation Techniques
a) Participating cross currency swap contracts (*)		495,436		653,142			Level 3	Pricing models based on discounted cash Present value of the estimated future cash flows based on unobservable yield curves and end period FX rates
-Held for trading		62,159		(24,199	)
-Derivatives used for hedging		433,277		677,341
b) FX swap, currency, interest swap and option contracts		351,768		656,302			Level 2	Present value of the estimated future cash flows based on observable yield curves and end period FX rates
-Held for trading		301,597		602,719
-Derivatives used for hedging		50,171		53,583
c) Currency forward contracts		7,585		—			Level 2	Forward exchange rates at the balance sheet date
-Held for trading		7,585		—

(*)

Since the

bid-ask

spread is unobservable input; in the valuation of participating cross currency swap contracts, prices in the

bid-ask

price range that were considered the most appropriate were used instead of mid prices. If mid prices were used in the valuation the fair value of participating cross currency swap contracts would have been TL 116,684 lower as at 31 December 2019 (31 December 2018: TL 123,995).

There were no transfers between fair value hierarchy levels during the year.

The following tables present the Group’s financial assets and financial liabilities measured and recognized at fair value at 31 December 2019 and 2018 on a hedge accounting basis:


Fair values
Currency	Nominal Value		Maturity Date		31 December 2019		31 December 2018		Fair Value hierarchy		Hedge Ratio		Change in intrinsic value of outstanding hedging instruments since 1 January		Change in value of hedging item used to determine hedge effectiveness
Participating cross currency swap contracts
EUR Contracts		433,400		23 October 2025		148,066		208,462		Level 3		1:1		293,774		(293,774	)
EUR Contracts		56,004		22 April 2026		7,675		64,670		Level 3		1:1		36,344		(36,344	)
USD Contracts		133,333		16 September 2020		246,062		394,975		Level 3		1:1		61,424		(61,424	)
USD Contracts		46,670		22 April 2026		9,893		—		Level 3		1:1		15,215		(15,215	)
USD Contracts		18,668		22 April 2026		21,581		9,234		Level 3		1:1		13,436		(13,436	)
Cross currency swap contracts
CNY Contracts		189,107		22 April 2026		50,171		53,583		Level 2		1:1		19,172		(19,172	)


Fair values
Currency	Nominal Value		Maturity Date		31 December 2018		31 December 2017		Fair Value hierarchy		Hedge Ratio		Change in intrinsic value of outstanding hedging instruments since 1 July		Change in value of hedging item used to determine hedge effectiveness
Participating cross currency swap contracts
EUR Contracts		500,000		23 October 2025		208,462		627,385		Level 3		1:1		359,400		(359,400	)
EUR Contracts		60,000		22 April 2026		64,670		1,078		Level 3		1:1		43,128		(43,128	)
USD Contracts		400,000		16 September 2020		394,975		224,560		Level 3		1:1		179,388		(179,388	)
USD Contracts		20,000		10 April 2026		9,234		—		Level 3		1:1		13,519		(13,519	)
Cross currency swap contracts
CNY Contracts		202,600		22 April 2026		53,583		—		Level 2		1:1		15,600		(15,600	)

Movements in the participating cross currency swap contracts for the years ended 31 December 2019 and 31 December 2018 are stated below:


	31 December 2019			31 December 2018
Opening balance		653,142			950,862
Cash flow effect		(582,580	)		(612,466	)
Total gain/loss:
Gains recognized in profit or loss		424,874			314,746

Closing balance		495,436			653,142

Net off / Offset

The Company signed a Credit Support Annex (CSA) against the default risk of parties in respect of a EUR 433,400 participating cross currency swap transaction executed on 15 July 2016 and restructured respectively on 26 May 2017 and 9 August 2018. Additionally, in the 25 June 2019, The Company signed a new CSA to EUR 56,004 participating cross currency swap transaction. As per the CSA, the swap’s current

(mark-to-market)

value will be determined on the 10th and 24th calendar day of each calendar month, and if the

mark-to-market

value is positive and exceeds a certain threshold, the bank will be posting cash collateral to the Company which will be equal to an amount exceeding the threshold (i.e. if the

mark-to-market

value is negative, the Company would be required to post collateral to the bank by an amount exceeding the threshold).

With respect to valuations, on a

bi-weekly

basis, a transfer will take place between the parties only if the

mark-to-market

value changes by at least EUR 1,000. Following the execution of CSA, the bank transferred to the Company EUR 224,843 as collateral (31 December 2019: TL 1,495,341) which was the amount exceeding the threshold and the Company transferred EUR 99,473 as collateral to the bank (31 December 2019: TL 661,555) which was the amount exceeding the threshold. The Company clarified this with the derivative assets included in the statement of financial position because it has the legal right to offset the collateral amount TL 833,786 that it recognizes under the borrowings and intends to pay according to the net fair value. This amount was netted from the borrowings and deducted from the derivative instruments in the balance sheet. As of 31 December 2019, were this transaction not conducted, derivative financial instruments assets would have been TL 1,679,299 and current borrowings TL 8,462,119.

Market risk

The Group uses various types of derivatives to manage market risks. All such transactions are carried out within the guidelines set by the treasury and risk management department. Generally, the Group seeks to apply hedge accounting to manage volatility in profit or loss.

Currency risk

The Group’s risk management policy is to hedge its estimated foreign currency exposure in respect of borrowing payments with various maturities at any point in time. The Group uses participating cross currency contracts to hedge its currency risk, mostly with a maturity of over one year from the reporting date. These contracts are generally designated as cash flow hedges.

The Group designates the hedge ratio, between the amount of the hedged item and the hedging instrument is 1:1 to hedge its currency risk.

The time value of options in participating cross currency swap contracts are included in the designation of the hedging instrument and are separately accounted for as a cost of hedging, which is recognized in equity in a cost of hedging reserve. The Group’s policy is for the critical terms of the participating cross currency contracts to align with the hedged item.

The Group determines the existence of an economic relationship between the hedging instruments and hedged item based on the currency, amount and timing of their respective cash flows. The Group assesses whether the derivative designated in each hedging relationship is expected to be and has been effective in offsetting changes in cash flows of the hedged item using the hypothetical derivative method.

In these hedge relationships, the main sources of ineffectiveness are;

•

The effect of the counterparties’ credit risk on the fair value of the swap contracts, which is not part of the hedged risk and associated credit risk considered to be very low at inception in the fair value of the hedged cash flows attributable to the change in exchange rates;

•

The entire fair value of the derivative contracts including currency basis was designated as the hedging instrument in cash flow hedge. The hypothetical derivative is modelled to exclude the impact of currency basis.

Interest rate risk

The Group adopts a policy of ensuring that its interest rate risk exposure is at a fixed rate. This is achieved partly by entering into fixed-rate instruments and partly by borrowing at a floating rate and using cross currency and interest rate swaps as hedges of the variability in cash flows attributable to movements in interest rates. The Group applies a hedge ratio of 1:1.

The Group determines the existence of an economic relationship between the hedging instrument and hedged item based on the reference interest rates, tenors, repricing dates and maturities and the notional or par amounts.

The Group assesses whether the derivative designated in each hedging relationship is expected to be effective in offsetting changes in cash flows of the hedged item using the hypothetical derivative method.

In these hedge relationships, the main sources of ineffectiveness are:

•

Cash flow sensitivity analysis for variable-rate instruments

A reasonable potential change of 100 basis points in interest rates and 10% change in foreign exchange currency at the reporting date would have increased (decreased) equity and profit or loss by the amounts shown below. This analysis assumes that all other variables remain constant.


	Profit or Loss				Equity, net of tax
	100 bp increase		100 bp decrease		100 bp increase			100 bp decrease
31 December 2019
Participating cross currency swap contracts		376,920		519,967		(102,693	)		(180,974	)
Cross currency swap contracts		17,631		16,516		(16,644	)		(18,114	)

Cash Flow sensitivity (net)		394,551		536,483		(119,337	)		(199,088	)


	Profit or Loss				Equity, net of tax
	100 bp increase		100 bp decrease		100 bp increase			100 bp decrease
31 December 2018
Participating cross currency swap contracts		937,845		9,455		(360,596	)		(259,066	)
Cross currency swap contracts		31,584		320		1,452			4,765

Cash Flow sensitivity (net)		969,429		9,775		(359,144	)		(254,301	)