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FINANCIAL INSTRUMENTS | 12 Months Ended
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Dec. 31, 2020
FINANCIAL INSTRUMENTS |
FINANCIAL INSTRUMENTS | NOTE 22 – FINANCIAL INSTRUMENTS
| a) |  | Categories of financial assets and financial liabilities
The following tables set out, for financial assets and liabilities as of December 31, 2020 and 2019, the supplementary disclosures on financial instruments required by IFRS 7 and the detail of gains and losses established by IFRS 9.
|  |  |  | Fair value |  |
As of December 31, 2020 |  |  |  | accounted |  |
|  |  |  | accounted |  | through other |  |
|  | Amortized |  | through profit |  | comprehensive |  |
|  | cost |  | or loss |  | Income |  | Total
Assets |  |  |  |  |  |  |  |
Cash and cash equivalents |  | 8,191 |  | 10,336 |  | — |  | 18,527
Investments |  | 171 |  | 6,496 |  | — |  | 6,667
Trade receivables |  | 19,015 |  | — |  | — |  | 19,015
Other receivables (1) |  | 1,475 |  | 2 |  | — |  | 1,477
Total |  | 28,852 |  | 16,834 |  | — |  | 45,686
Liabilities |  |  |  |  |  |  |  |
Trade payables |  | 41,806 |  | — |  | — |  | 41,806
Financial debt |  | 199,673 |  | 170 |  | 357 |  | 200,200
Salaries and social security payables |  | 15,176 |  | — |  | — |  | 15,176
Leases liabilities |  | 10,302 |  | — |  | — |  | 10,302
Other liabilities (1) |  | 475 |  | — |  | — |  | 475
Total |  | 267,432 |  | 170 |  | 357 |  | 267,959
| (1) |  | Only includes financial assets and liabilities according to the scope of IFRS 7.
|  |  | Fair value |  |
As of December 31, 2019 |  | accounted |  | accounted |  |
|  |  |  | through |  | through other |  |
|  | Amortized |  | profit or |  | comprehensive |  |
|  | cost |  | loss |  | Income |  | Total
Assets |  |  |  |  |  |  |  |
Cash and cash equivalents |  | 3,296 |  | 31,531 |  | — |  | 34,827
Investments |  | 1,452 |  | 491 |  | — |  | 1,943
Trade receivables |  | 23,208 |  | — |  | — |  | 23,208
Other receivables (2) |  | 1,918 |  | 222 |  | — |  | 2,140
Total |  | 29,874 |  | 32,244 |  | — |  | 62,118
Liabilities |  |  |  |  |  |  |  |
Trade payables |  | 46,721 |  | — |  | — |  | 46,721
Financial debt |  | 206,418 |  | 329 |  | 181 |  | 206,928
Salaries and social security payables |  | 14,705 |  | — |  | — |  | 14,705
Leases liabilities |  | 8,592 |  | — |  | — |  | 8,592
Other liabilities (2) |  | 396 |  | — |  | — |  | 396
Total |  | 276,832 |  | 329 |  | 181 |  | 277,342
| (2) |  | Only includes financial assets and liabilities according to the scope of IFRS 7.
Gains and losses by category – Year 2020
|  | Net gain/(loss) |  | Of which interest
Financial assets at amortized cost |  | 9,300 |  | 1,306
Financial liabilities at amortized cost |  | (30,250) |  | (18,388)
Financial assets at fair value through profit or loss |  | 351 |  | 388
Financial liabilities at amortized cost through profit or loss |  | (1,486) |  | —
Total |  | (22,085) |  | (16,694)
Gains and losses by category – Year 2019
|  | Net gain/(loss) |  | Of which interest
Financial assets at amortized cost |  | 10,103 |  | 890
Financial liabilities at amortized cost |  | (27,021) |  | (18,653)
Financial assets at fair value through profit or loss |  | 3,540 |  | 1,315
Financial liabilities at fair value through profit or loss |  | (1,620) |  | —
Total |  | (14,998) |  | (16,448)
| a) |  | Fair value hierarchy and other disclosures
IFRS 7 establishes a hierarchy of fair value, based on the information used to measure the financial assets and liabilities and also establishes different valuation techniques. According to IFRS 7, valuation techniques used to measure fair value shall maximize the use of observable inputs. The measurement at fair value of the financial instruments of Telecom are classified according to the three levels set out in IFRS 7: -Level 1: Fair value determined by quoted prices (unadjusted) in active markets for identical assets or liabilities. -Level 2: Fair value determined based on inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (e.g. as prices) or indirectly (e.g. derived from prices). -Level 3: Fair value determined by unobservable inputs where the reporting entity is required to develop its own assumptions. Financial assets and liabilities recognized at fair value as of December 31, 2020 and 2019, their inputs, valuation techniques and the level of hierarchy are listed below: Mutual Funds: These investments are included in Cash and cash equivalents and Investments. Telecom and its subsidiaries have other short-term investments amounting to $8,797 and $31,531 as of December 31, 2020 and 2019, respectively. The fair value is based on information obtained from active markets and corresponds to quoted market prices as of year-end; therefore, its valuation is classified as Level 1. Government bonds: These bonds are included in “Investments” in the consolidated statement of financial position. As of December 31, 2020 and 2019 Telecom and its subsidiaries have Government bonds in an amount of $6,593 and $404, respectively. The fair value was determined using information from active markets, valuing each bond to its closing year market value, so, its valuation qualifies as Level 1. Derivative financial instruments (Forward contracts to purchase US dollars at fixed exchange rates and interest rates swap): The fair value of Telecom's and its subsidiaries NDF contracts, disclosed in the chapter “Hedge Accounting” was determined by information obtained in the most representative financial institutions in Argentina. According to this, the derivative financial instruments’ valuation was classified as Level 2. During the years ended December 31, 2020 and 2019, there were no transfers between Levels of the fair value hierarchy. According to IFRS 7, it is also required to disclose fair value information about financial instruments even if they are not recognized at fair value in the balance sheet, for which it is practicable to estimate fair value. The financial instruments which are discussed in this section include, among others, cash and cash equivalents, investments at amortized cost, accounts receivable, accounts payable and other instruments. Derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in an immediate sale of the instrument. Also, because of differences in methodologies and assumptions used to estimate fair value, the Company’s fair values should not be compared to those of other companies. The methods and assumptions used to estimate the fair values of each class of financial instrument falling under the scope of IFRS 7 as of December 31, 2020 and 2019 are as follows: Cash and banks Carrying amounts approximate its fair value. Time deposits and Other investments at amortized cost (included in Cash and cash equivalents) Telecom and its subsidiaries consider as cash and cash equivalents all short-term and highly liquid investments that are readily convertible to known amounts of cash, subject to an insignificant risk of changes in value and their original maturity or the remaining maturity at the date of purchase does not exceed 3 months. The carrying amount reported in the statement of financial position approximates fair value. Current and non-current Investments valued at amortized cost As of December 31, 2020, fair value of such investments amounts to $176 and its carrying value amounts to $171. As of December 31, 2019, fair value of such investments amounted to $1,443 and its carrying value amounted to $1,452. Trade receivables Carrying amounts are considered to approximate fair value due to the short term nature of these trade receivables. Noncurrent trade receivables have been recognized at their amortization cost, using the effective interest method and are not significant. All amounts that are assumed to be uncollectible within a reasonable period are written off and/or reserved. Trade payables and Leases liabilities The carrying amount of accounts payable and leases liabilities reported in the consolidated statement of financial position approximates its fair value due to the short term nature of these accounts payable. Noncurrent trade payables and leases liabilities have been discounted. Financial Debt As of December 31, 2020, fair value of financial debt is as follows:
|  | Carrying Value |  | Fair Value
Notes |  | 95,297 |  | 88,290
Other financial debts |  | 104,903 |  | 98,403
|  | 200,200 |  | 186,693
As of December 31, 2019, fair value of financial debt is as follows:
|  | Carrying Value |  | Fair Value
Notes |  | 72,938 |  | 71,339
Other financial debts |  | 133,990 |  | 132,054
|  | 206,928 |  | 203,393
Salaries and social security payables The carrying amount of Salaries and social security payables, reported in the consolidated statement of financial position approximates its fair value. Other receivables, net (except for NDF) and other liabilities The carrying amount of other receivables, net and other liabilities reported in the consolidated statement of financial position approximates its fair value.
| b) |  | Hedge accounting
Telecom and its subsidiaries believe that a hedging relationship qualifies for hedge accounting if all of the following conditions established by the IFRS 9 are met: a)The hedging relationship consists only of eligible hedging instruments and hedged items; b)At the beginning of the hedge relationship, there is a formal designation and documentation of the hedging relationship and objective and strategy for risk management of the Company and its subsidiaries for undertaking the hedge. That documentation shall include identification of the hedging instrument, the hedged item, the nature of the risk being hedged and how the entity assesses whether the hedging relationship meets the requirements of hedge effectiveness (including analysis of sources of hedge ineffectiveness and how to determine the hedge ratio); and c)The hedging relationship satisfies the following requirements of hedge effectiveness: (i)The economic relationship between the hedged item and the hedging instrument; (ii)The effect of credit risk is not predominant in respect of changes of value coming from this economic relationship, and (iii)The coverage ratio of the hedging relationship is the same as the one provided by the amount of the hedged item that really covers the entity and the amount of the hedging instrument that the entity actually uses to cover that amount of the hedged item. During years 2019 and 2020 • LIBOR Hedges During year ended December 31, 2017, Telecom Argentina entered into several NDF agreements to hedge the fluctuation of LIBOR from the IFC loan amounting to US$400 million and from the IIC loan amounting to US$100 million. The mentioned agreements hedge a total amount of US$440 million. Such NDF allow fixing the variable rate in a range between 2.085% and 2.4525% nominal annual rate. As of December 31, 2018, Telecom recognized gains of $13 related to those contracts, that are included in Debt financial expenses - Interests on financial debt. As of December 31, 2019, Telecom recognized a liability of $189, which is included in other Financial Debt ($170 current and $19 non-current). Additionally, during the year ended December 31, 2019, Telecom recognizes gains of $82 related to those contracts, that are included in Debt financial expenses – Interests on financial debt. As of December 31, 2020, Telecom recognized a liability of $461, which is included in other Financial Debt ($450 current and $11 non-current). Additionally, during the year ended December 31, 2020, Telecom recognizes a loss of $293 related to those contracts, that are included in Debt financial expenses – Interests on financial debt. • Exchange rate Hedges During year ended December 31, 2018, Telecom Argentina entered into several NDF agreements to hedge the fluctuation of the exchange rate of certain commercial obligations. As of December 31, 2018, Telecom recognized a loss of $319, that are included in Other financial results, net - Other exchange differences. Also, during year ended December 31, 2018, Telecom recognized gains for $2,338 related to NDF agreements to hedge the fluctuation of the exchange rate from its loan portfolio, that are included in Debt financial expenses – Interests on financial debt. During year ended December 31, 2019, Telecom Argentina entered into several NDF agreements to hedge the fluctuation of the exchange rate from its loan portfolio amounting to US$499 million fixing the average exchange rate in 52.50 Argentine pesos/US$, expiring between March 2019 and April 2020. During 2019, Telecom recognized gains related to these agreements of $972 that are included in Debt financial expenses – Foreign currency exchange losses on financial debts. As of December 31, 2019, Telecom maintained NDF agreements for a total of US$46.5 million for those that has recognized a receivable of $222, which is included in current Other receivables and a liability of $321 which is included in current Financial Debt. During year ended December 31, 2020, Telecom Argentina entered into several NDF agreements to hedge the fluctuation of the exchange rate from its loan portfolio amounting to US$477 million fixing the average exchange rate in 87.54 Argentine pesos/US$, expiring between February 2020 and February 2021. During 2020, Telecom recognized a loss related to these agreements of $1,523 that are included Debt financial expenses - Foreign currency exchange losses on financial debts. As of December 31, 2020, Telecom maintained NDF agreements for a total of US$117 million for those that has recognized a receivable of $2, which is included in current Other receivables and a liability of $66 which is included in current Financial Debt. Offsetting of financial assets and financial liabilities in scope of IFRS 7 The information required by the amendment to IFRS 7 as of December 31, 2020 and 2019 is as follows:
|  | As of December 31, 2020
|  | Trade |  | Other |  | Trade |  | Other
|  | receivables |  | receivables |  | payables |  | liabilities
Current and noncurrent assets (liabilities) - Gross value |  | 19,902 |  | 1,567 |  | (42,693) |  | (565)
Offsetting |  | (887) |  | (90) |  | 887 |  | 90
Current and noncurrent assets (liabilities) – Booked value |  | 19,015 |  | 1,477 |  | (41,806) |  | (475)
|  | As of December 31, 2019
|  | Trade |  | Other |  | Trade |  | Other
|  | receivables |  | receivables |  | payables |  | liabilities
Current and noncurrent assets (liabilities) - Gross value |  | 23,426 |  | 2,209 |  | (46,939) |  | (465)
Offsetting |  | (218) |  | (69) |  | 218 |  | 69
Current and noncurrent assets (liabilities) – Booked value |  | 23,208 |  | 2,140 |  | (46,721) |  | (396)
Telecom and its subsidiaries offset the financial assets and liabilities to the extent that such offsetting is provided by offsetting agreements and provided that Telecom has the intention to make such offsetting, in accordance with requirements established in IAS 32. The main financial assets and liabilities offset correspond to transactions with other national and foreign operators including interconnection, carriers and Roaming (being offsetting a standard practice in the telecommunications industry at the international level that Telecom and its subsidiaries applies regularly). Offsetting is also applied to transactions with agents.

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