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FINANCIAL ASSETS AND LIABILITIES | 6 Months Ended
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Jun. 30, 2018
FINANCIAL ASSETS AND LIABILITIES |
FINANCIAL ASSETS AND LIABILITIES | 10. FINANCIAL ASSETS AND LIABILITIES SIGNIFICANT CHANGES IN FINANCIAL ASSETS AND LIABILITIES There were no significant changes in financial assets and liabilities in the six-month period ended June 30, 2018, except for the scheduled repayments of debt or as described below. Furthermore, there were no changes in risks and risk management policies as disclosed in the Group’s annual consolidated financial statements as of and for the year ended December 31, 2017. Upon transition to IFRS 9, the Company has reclassified financial assets from “Available for sale” to “Fair value through other comprehensive income with recycling”. For further details, refer to Note 2. Banglalink financing In February and April 2018 Banglalink Digital Communications Limited, a subsidiary of the Company, has performed multiple drawdowns in a total amount of BDT 13,059 million (US$157) under two syndicated facilities with several banks, which were entered into pursuant to an agreement dated December 24, 2017 for an amount of BDT 29,300 million (US$355 as of December 24, 2017). Repayment will take place through periodic instalments between December 24, 2018 and December 24, 2022. Bank loans and bonds The Company had the following principal amounts outstanding for interest-bearing loans and bonds at reporting date:
|  |  |  |  |  |  |  |  |  |  |  | Principal amount outstanding |
Borrower |  | Type of debt |  | Guarantor |  | Currency |  | Interest rate |  | Maturity |  | June 30, 2018 |  | December 31, 2017 |
VEON Holdings |  | Loans |  | None |  | RUB |  | 8.75% - 10.0% |  | 2022 |  | 2,271 |  | 2,474 |
VEON Holdings |  | Notes |  | None |  | US$ |  | 5.2% - 5.95% |  | 2019 -2023 |  | 1,554 |  | 1,554 |
VEON Holdings |  | Notes |  | None |  | US$ |  | 3.95% - 4.95% |  | 2021 - 2024 |  | 1,500 |  | 1,500 |
VEON Holdings |  | Loans |  | None |  | EUR |  | 3mEURIBOR + 1.9% - 2.75% |  | 2022 |  | 732 |  | 752 |
VEON Holdings |  | Notes |  | PJSC VimpelCom |  | US$ |  | 7.5% |  | 2022 |  | 628 |  | 628 |
VEON Holdings |  | Syndicated loan (RCF) |  | None |  | US$ |  | 1mLIBOR + 2.25% |  | 2018 |  | — |  | 250 |
VEON Holdings |  | Notes |  | None |  | RUB |  | 9.0% |  | 2018 |  | — |  | 208 |
VEON Amsterdam B.V. |  | Loan |  | EKN*, PJSC VimpelCom |  | US$ |  | 1.72% |  | 2022 |  | 143 |  | 159 |
GTH Finance B.V. |  | Notes |  | VEON Holdings B.V. |  | US$ |  | 6.25% - 7.25% |  | 2020 -2023 |  | 1,200 |  | 1,200 |
VIP Finance Ireland |  | Eurobonds |  | None |  | US$ |  | 7.75% |  | 2021 |  | 377 |  | 543 |
PMCL |  | Loans |  | None |  | PKR |  | 6mKIBOR + 0.35% - 0.9% |  | 2020 -2022 |  | 322 |  | 379 |
PMCL |  | Loans |  | EKN* |  | US$ |  | 6mLIBOR + 1.9% |  | 2020 |  | 162 |  | 212 |
Banglalink Digital Communications Ltd. |  | Senior Notes |  | None |  | US$ |  | 8.6% |  | 2019 |  | 300 |  | 300 |
Banglalink Digital Communications Ltd. |  | Syndicated loans |  | None |  | BDT |  | Average bank deposit rate + 3.0% - 4.25% |  | 2020 - 2022 |  | 156 |  | — |
Optimum Telecom Algérie S.p.A. |  | Syndicated loan |  | Omnium Telecom Algérie S.p.A. |  | DZD |  | Bank of Algeria re-discount rate + 2.0% |  | 2019 |  | 128 |  | 131 |
|  | Other debt ** |  |  |  |  |  | 519 |  | 813 |
|  | Total bank loans and bonds |  |  |  |  |  | 9,992 |  | 11,103 |
* Exportkreditnämnden (The Swedish Export Credit Agency) ** As of June 30, 2018, other debt includes overdrawn bank accounts related to cash-pooling program of US$201 (2017: US$ nil). For further details, refer to Note 11. FAIR VALUES Set out below is a comparison by class of the carrying amounts and fair value of the Company’s financial instruments that are carried in the interim condensed consolidated financial statements as of June 30, 2018, other than those with carrying amounts that are reasonable approximations of fair values:
|  | Carrying value |  | Fair value |
Financial assets |  | June 30, 2018 |  | December 31, 2017 |  | June 30, 2018 |  | December 31, 2017 |
Financial assets at fair value through profit or loss |  |  |  |  |  |  |  |  |
Derivatives not designated as hedges |  |  |  |  |  |  |  |  |
Foreign exchange contracts |  | 3 |  | 5 |  | 3 |  | 5 |
Embedded derivatives in notes |  | — |  | 5 |  | — |  | 5 |
Financial assets at fair value through other comprehensive income (with recycling) |  | 56 |  | — |  | 56 |  | — |
Available for sale financial assets (see Note 2) |  | — |  | 71 |  | — |  | 71 |
Total financial assets at fair value |  | 59 |  | 81 |  | 59 |  | 81 |
Financial assets at amortized cost |  |  |  |  |  |  |  |  |
Bank deposits and interest accrued |  | 15 |  | 70 |  | 15 |  | 70 |
Cash pledged as collateral (see Note 3) |  | — |  | 998 |  | — |  | 998 |
Other investments |  | 20 |  | 12 |  | 20 |  | 12 |
Other loans granted |  | 5 |  | 3 |  | 5 |  | 3 |
Total financial assets at amortized cost |  | 40 |  | 1,083 |  | 40 |  | 1,083 |
Total financial assets |  | 99 |  | 1,164 |  | 99 |  | 1,164 |
Non-current |  | 18 |  | 34 |  |  |  |  |
Current |  | 81 |  | 1,130 |  |  |  |  |
|  | Carrying value |  | Fair value |
Financial Liabilities |  | June 30, 2018 |  | December 31, 2017 |  | June 30, 2018 |  | December 31, 2017 |
Financial liabilities at fair value through profit or loss |  |  |  |  |  |  |  |  |
Derivatives not designated as hedges |  |  |  |  |  |  |  |  |
Foreign exchange contracts |  | 7 |  | — |  | 7 |  | — |
Contingent consideration |  | 49 |  | 49 |  | 49 |  | 49 |
Derivatives designated as net investment hedges |  |  |  |  |  |  |  |  |
Cross currency interest rate exchange contracts |  | 48 |  | 59 |  | 48 |  | 59 |
Derivatives designated as cash flow hedges |  |  |  |  |  |  |  |  |
Interest rate exchange contracts |  | — |  | 1 |  | — |  | 1 |
Total financial liabilities at fair value |  | 104 |  | 109 |  | 104 |  | 109 |
Financial liabilities at amortized cost |  |  |  |  |  |  |  |  |
Bank loans and bonds, principal |  | 9,992 |  | 11,103 |  | 10,089 |  | 11,548 |
Interest accrued |  | 112 |  | 129 |  | 112 |  | 130 |
Discounts, unamortized fees, hedge basis adjustment |  | (29 | ) | (34 | ) | — |  | — |
Bank loans and bonds at amortized cost |  | 10,075 |  | 11,198 |  | 10,201 |  | 11,678 |
Put-option liability over non-controlling interest |  | 307 |  | 310 |  | 307 |  | 310 |
Other financial liabilities |  | 85 |  | 13 |  | 85 |  | 13 |
Total financial liabilities at amortized cost |  | 10,467 |  | 11,521 |  | 10,593 |  | 12,001 |
Total financial liabilities |  | 10,571 |  | 11,630 |  | 10,697 |  | 12,110 |
Non-current |  | 9,044 |  | 10,362 |  |  |  |  |
Current |  | 1,527 |  | 1,268 |  |  |  |  |
The fair value of the financial assets and liabilities are included as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair values were estimated based on quoted market prices for our bonds, derived from market prices or by using discounted cash flows under the agreement at the rate applicable for instruments with similar maturity and risk profile. The carrying amount of cash and cash equivalents, trade and other receivables, and trade and other payables approximate their respective fair value. The fair value of derivative financial instruments is determined using present value techniques such as discounted cash flow techniques, Monte Carlo simulation and/or the Black-Scholes model. These valuation techniques are commonly used for valuations of derivatives. Observable inputs used in the valuation techniques include LIBOR, EURIBOR, swap curves, basis swap spreads, foreign exchange rates and credit default spreads of both counterparties and our own entities. The fair value of debt instruments measured at fair value through other comprehensive income are determined through comparison of various multiples and reference to market valuation of similar instruments quoted in an active market. If information is not available, a discounted cash flow method is used. Fair value measurements for financial liabilities at amortized cost are based on quoted market prices, where available. If the quoted market price is not available, the fair value measurement is based on discounted expected future cash flows using a market interest rate curve, credit spreads and maturities. Fair value hierarchy As of June 30, 2018 and December 31, 2017, the Group recognized financial instruments at fair value in the statement of financial position. The fair value hierarchy ranks fair value measurements based on the type of inputs used in the valuation:
| · |  | Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities
| · |  | Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly
| · |  | Level 3: inputs are unobservable inputs for the asset or liability
The following table provides the disclosure of recurring fair value measurements separately for each major class of assets and liabilities.
As of June 30, 2018 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total |
Financial assets at fair value through profit or loss |  |  |  |  |  |  |  |  |
Derivatives not designated as hedges |  |  |  |  |  |  |  |  |
Foreign exchange contracts |  | — |  | 3 |  | — |  | 3 |
Financial assets at fair value through other comprehensive income (with recycling) |  | — |  | 56 |  | — |  | 56 |
Total financial assets at fair value |  | — |  | 59 |  | — |  | 59 |
Financial liabilities at fair value through profit or loss |  |  |  |  |  |  |  |  |
Derivatives not designated as hedges |  |  |  |  |  |  |  |  |
Foreign exchange contracts |  | — |  | 7 |  | — |  | 7 |
Contingent consideration |  | — |  | — |  | 49 |  | 49 |
Derivatives designated as net investment hedges |  |  |  |  |  |  |  |  |
Cross currency interest rate exchange contracts |  | — |  | 48 |  | — |  | 48 |
Derivatives designated as cash flow hedges |  |  |  |  |  |  |  |  |
Interest rate exchange contracts |  | — |  | — |  | — |  | — |
Total financial liabilities at fair value |  | — |  | 55 |  | 49 |  | 104 |
As of December 31, 2017 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total |
Financial assets at fair value through profit or loss |  |  |  |  |  |  |  |  |
Derivatives not designated as hedges |  |  |  |  |  |  |  |  |
Foreign exchange contracts |  | — |  | 5 |  | — |  | 5 |
Embedded derivatives in notes |  | — |  | 5 |  | — |  | 5 |
Available for sale financial assets (see Note 2) |  | — |  | 71 |  | — |  | 71 |
Total financial assets at fair value |  | — |  | 81 |  | — |  | 81 |
Financial liabilities at fair value through profit or loss |  |  |  |  |  |  |  |  |
Derivatives not designated as hedges |  |  |  |  |  |  |  |  |
Foreign exchange contracts |  | — |  | — |  | — |  | — |
Contingent consideration |  | — |  | — |  | 49 |  | 49 |
Derivatives designated as net investment hedges |  |  |  |  |  |  |  |  |
Cross currency interest rate exchange contracts |  | — |  | 59 |  | — |  | 59 |
Derivatives designated as cash flow hedges |  |  |  |  |  |  |  |  |
Interest rate exchange contracts |  | — |  | 1 |  | — |  | 1 |
Total financial liabilities at fair value |  | — |  | 60 |  | 49 |  | 109 |
The reconciliation of movements relating to financial instruments classified in Level 3 of the fair value hierarchy:
Financial liabilities at fair value through profit or loss |  | Contingent consideration |  | Total |
As of December 31, 2017 |  | 49 |  | 49 |
As of June 30, 2018 |  | 49 |  | 49 |
Transfers into and out of fair value hierarchy levels are recognized at the end of the reporting period (or the date of the event or change in circumstances that caused the transfer). On a quarterly basis, the Company reviews if there are any indicators for a possible transfer between Level 2 and Level 3. This depends on how the Company is able to obtain the underlying input parameters when assessing the fair valuations. During the six-month period ended June 30, 2018, there were no transfers between Level 1, Level 2 and Level 3 fair value measurements. All impairment losses and changes in fair values of financial instruments are unrealized and are recorded in “Other non-operating losses” in the consolidated income statement or “Other” in the consolidated statement of comprehensive income.

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