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12 FINANCIAL INSTRUMENTS | 12 Months Ended
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Dec. 31, 2019
Financial instruments [Abstract] |
FINANCIAL INSTRUMENTS | 12 FINANCIAL INSTRUMENTS I - Identification and measurement of financial instruments The Company can operate with various financial instruments, mainly cash and cash equivalents, including short-term investments, marketable securities, trade receivables, trade payables, and borrowings and financing. The Company also can operate into derivative transactions, currency swap, interest rate swap and commodity swap operations. Considering the nature of the instruments, the fair value is basically determined using quotations in the open capital market of Brazil and the Commodities and Futures Exchange. The amounts recorded in current assets and liabilities have immediate liquidity or maturity, mostly in short time maturity. Considering the term and the characteristics of these instruments, the carrying amounts approximate the fair values · Classification of financial instruments
|  |  |  |  |  |  |  |  |  |  |  |  |  | Consolidated
|  |  |  |  |  | 12/31/2019 |  |  |  | 12/31/2018
| Notes |  | Fair value through profit or loss |  | Measured at amortized cost |  | Balances |  | Fair value through profit or loss |  | Measured at amortized cost |  | Balances
Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |
Current |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | 3 |  |  |  | 1,088,955 |  | 1,088,955 |  |  |  | 2,248,004 |  | 2,248,004
Financial investments |  | 4 |  |  |  | 2,633,173 |  | 2,633,173 |  |  |  | 895,713 |  | 895,713
Trade receivables |  | 5 |  |  |  | 2,047,931 |  | 2,047,931 |  |  |  | 2,078,182 |  | 2,078,182
Dividends receivable |  | 7 |  |  |  | 44,554 |  | 44,554 |  |  |  | 46,171 |  | 46,171
Derivative financial instruments |  | 7 |  | 1,364 |  |  |  | 1,364 |  | 351 |  |  |  | 351
Trading securities |  | 7 |  | 4,034 |  |  |  | 4,034 |  | 4,503 |  |  |  | 4,503
Loans - related parties |  | 7 |  |  |  |  |  |  |  |  |  | 2,675 |  | 2,675
Total |  |  |  | 5,398 |  | 5,814,613 |  | 5,820,011 |  | 4,854 |  | 5,270,745 |  | 5,275,599
Non current |  |  |  |  |  |  |  |  |  |  |  |  |  |
Financial investments |  | 4 |  |  |  | 95,719 |  | 95,719 |  |  |  | 7,772 |  | 7,772
Other trade receivables |  | 7 |  |  |  | 7,059 |  | 7,059 |  |  |  | 7,451 |  | 7,451
Compulsory loan - Eletrobrás |  | 7 |  |  |  | 845,284 |  | 845,284 |  |  |  | 813,428 |  | 813,428
Loans - related parties |  | 7 |  |  |  | 846,300 |  | 846,300 |  |  |  | 706,605 |  | 706,605
Investments |  | 8 |  | 47,300 |  |  |  | 47,300 |  | 2,279,189 |  |  |  | 2,279,189
Derivative financial instruments |  | 7 |  | 4,203 |  |  |  | 4,203 |  |  |  |  |  |
Total |  |  |  | 51,503 |  | 1,794,362 |  | 1,845,865 |  | 2,279,189 |  | 1,535,256 |  | 3,814,445
Total Assets |  |  |  | 56,901 |  | 7,608,975 |  | 7,665,876 |  | 2,284,043 |  | 6,806,001 |  | 9,090,044
Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |
Current |  |  |  |  |  |  |  |  |  |  |  |  |  |
Borrowings and financing |  | 11 |  |  |  | 5,152,234 |  | 5,152,234 |  |  |  | 5,681,797 |  | 5,681,797
Leases |  | 13.a |  |  |  | 35,040 |  | 35,040 |  |  |  |  |  |
Trade payables |  |  |  |  |  | 3,012,654 |  | 3,012,654 |  |  |  | 3,408,056 |  | 3,408,056
Trade payables - Drawee risk |  | 13 |  |  |  | 1,121,312 |  | 1,121,312 |  |  |  | 65,766 |  | 65,766
Dividends and interest on equity |  | 13 |  |  |  | 13,252 |  | 13,252 |  |  |  | 932,005 |  | 932,005
Total |  |  |  |  |  | 9,334,492 |  | 9,334,492 |  |  |  | 10,087,624 |  | 10,087,624
Non current |  |  |  |  |  |  |  |  |  |  |  |  |  |
Borrowings and financing |  | 11 |  |  |  | 22,938,469 |  | 22,938,469 |  |  |  | 23,260,944 |  | 23,260,944
Leases |  | 13.a |  |  |  | 439,350 |  | 439,350 |  |  |  |  |  |
Total |  |  |  |  |  | 23,377,819 |  | 23,377,819 |  |  |  | 23,260,944 |  | 23,260,944
Total Liabilities |  |  |  |  |  | 32,712,311 |  | 32,712,311 |  |  |  | 33,348,568 |  | 33,348,568
· Fair value measurement The following table shows the financial instruments recognized at fair value through profit or loss using a valuation method:
Consolidated |  |  |  | 12/31/2019 |  |  |  | 12/31/2018
| Level 1 |  | Level 2 |  | Balances |  | Level 1 |  | Level 2 |  | Balances
Assets |  |  |  |  |  |  |  |  |  |  |  |
Current |  |  |  |  |  |  |  |  |  |  |  |
Financial assets at fair value through profit or loss |  |  |  |  |  |  |  |  |  |  |  |
Derivative financial instruments |  |  |  | 1,364 |  | 1,364 |  |  |  | 351 |  | 351
Trading securities |  | 4,034 |  |  |  | 4,034 |  | 4,503 |  |  |  | 4,503
Non-current |  |  |  |  |  |  |  |  |  |  |  |
Financial assets at fair value through profit or loss |  |  |  |  |  |  |  |  |  |  |  |
Investments |  | 47,300 |  |  |  | 47,300 |  | 2,279,189 |  |  |  | 2,279,189
Financial derivative instruments |  |  |  | 4,203 |  | 4,203 |  |  |  |  |  |
Total Assets |  | 51,334 |  | 5,567 |  | 56,901 |  | 2,283,692 |  | 351 |  | 2,284,043
Level 1 - quoted prices in active markets for identical assets or liabilities. Level 2 - Includes observable inputs in market such as interest rates, exchange etc., but not prices traded in active markets. There are no assets and liabilities classified as level 3. II – Investments in financial instruments measured at fair value through profit or loss. The Company has common shares (USIM3), preferred shares (USIM5) of Usiminas (“Ações Usiminas”) and shares of Panatlântica S.A (PATI 3), which are designated as fair value through profit or loss. Usiminas assets are classified as current asset recognized as financial investment and shares of Panatlântica as noncurrent assets recognizes as investments. Both are recorded at fair value, based on the market price quotation on the stock exchange (B3 S.A.). In accordance with the Company's policy, gains and losses arising from changes in the share price are recorded directly in the statement of income under Other Operating Income and Expenses.
Class of shares |  | 12/31/2019 |  | 12/31/2018 |  | 12/31/2019
| Quantity |  | Interest (%) |  | Share price |  | Closing Balance |  | Quantity |  | Interest (%) |  | Share price |  | Closing Balance |  | Fair value adjustment recognized in profit or loss (note 23)
USIM3 |  | 107,156,651 |  | 15.19% |  | 9.87 |  | 1,057,636 |  | 107,156,651 |  | 15.19% |  | 11.44 |  | 1,225,872 |  | (168,236)
USIM5 |  | 111,144,456 |  | 29.29% |  | 9.51 |  | 1,056,984 |  | 111,144,456 |  | 29.29% |  | 9.22 |  | 1,024,751 |  | 32,232
|  |  |  |  |  |  |  | 2,114,620 |  |  |  |  |  |  |  | 2,250,623 |  | (136,004)
PATI3 |  | 2,065,529 |  | 11.31% |  | 22.90 |  | 47,300 |  | 1,997,642 |  | 11.33% |  | 14.30 |  | 28,566 |  | 17,224
|  |  |  |  |  |  |  | 2,161,920 |  |  |  |  |  |  |  | 2,279,189 |  | (118,780)
· Share market price risks The Company is exposed to the risk of changes in the price of the shares due to the investments, valued at fair value through profit or loss that have their prices based on the market price on the stock exchange (B3). III - Financial risk management The Company follows strategies of managing its risks, with guidelines regarding the risks incurred by the company. The nature and general position of financial risks are regularly monitored and managed in order to assess the results and the financial impact on cash flow. The quality of counterparties’ hedging instruments and the credit limit are also periodically reviewed. The market risks are hedged when it is considered necessary to support the corporate strategy or when it is necessary to maintain a level of financial flexibility. Under the terms of the risk management policy, the Company can manage some risks by using derivative instruments not associate to any speculative deals or short sales. 12.a) Foreign exchange and interest rate risks · Exchange rate risk The exchange rate risk arises from the existence of assets and liabilities denominated in US dollars or Euros since the Company's functional currency is substantially the Real that is called natural currency exposure. Net exposure is the result of offsetting the natural currency exposure by hedging instruments adopted by CSN. The consolidated net exposure as of December 31, 2019 is as follows:
|  |  |  | 12/31/2019
Foreign Exchange Exposure |  | (Amounts in US$’000) |  | (Amounts in €’000)
Cash and cash equivalents overseas |  | 105,485 |  | 10,937
Trade receivables |  | 346,264 |  | 1,179
Other assets |  | 3,516 |  | 5,815
Total Assets |  | 455,265 |  | 17,931
Borrowings and financing |  | (4,096,899) |  | (24,395)
Trade payables |  | (69,284) |  | (10,488)
Other liabilities |  | (2,680) |  | (963)
Total Liabilities |  | (4,168,863) |  | (35,846)
Foreign exchange exposure |  | (3,713,598) |  | (17,915)
Cash flow hedge accounting |  | 2,530,713 |  |
Swap CDI x U.S.Dollar |  | 67,000 |  |
Net Investment hedge accounting |  |  |  | 24,000
Net foreign exchange exposure |  | (1,115,885) |  | 6,085
Perpetual Bonds |  | 1,000,000 |  |
Net foreign exchange exposure excluding perpetual bonds |  | (115,885) |  | 6,085
CSN uses as strategy the hedge accounting, as well as derivative instruments with the purpose of hedging CSN's future cash flows. · Interest rate risk Risk arises from short- and long-term liabilities with fixed or post fixed interest rates and inflation rates. Item 12.b) shows the derivatives and hedging strategies to protect exchange and interest rates risks. 12.b) Hedging instruments: Derivative and cash flows hedge accounting and foreign investment hedge accounting CSN uses instruments for protection of foreign currency risk and interest rate risk, as shown in the following topics: · Portfolio of derivative financial instruments Dollar x Euro swap The subsidiary Lusosider has derivative transactions to protect its dollar exposure versus euro. Exchange rate swap CDI x Dollar The company has derivative operations with Bradesco Bank to hedge its NCE debt raised in September 2019 with maturity in October 2023 in the amount of US$ 67million (equivalent to R$ 278milhões), at a cost consistent with that usually praticed by the Company.
|  |  |  | Consolidated
|  |  |  |  |  |  |  |  |  |  |  |  |  | 12/31/2019
|  |  |  |  |  |  |  | Appreciation (R$) |  | Fair value (market) |  | Impact on financial income (expenses) in 2019
Counterparties |  | Maturity |  | Functional Currency |  | Notional amount |  | Asset position |  | Liability position |  | Amounts receivable / (payable) |
BCP |  | 02/07/2020 |  | Dollar |  | 12,875 |  | 51,923 |  | (50,559) |  | 1,364 |  | 783
Total Dollar-to-Euro swap |  |  |  |  |  | 12,875 |  | 51,923 |  | (50,559) |  | 1,364 |  | 783
Bradesco |  | 10/02/2023 |  | Dollar |  | 67,000 |  | 298,385 |  | (294,182) |  | 4,203 |  | 4,203
Total Swap CDI x dollar |  |  |  |  |  | 67,000 |  | 298,385 |  | (294,182) |  | 4,203 |  | 4,203
|  |  |  | 350,308 |  | (344,741) |  | 5,567 |  | 4,986
· Classification of the derivatives in the balance sheet and statement of income
|  |  |  |  |  |  |  | 12/31/2019
Instruments |  | Assets |  | Finance income (expenses), net (note 24)
| Current |  | Non current |  | Total |
Dollar to euro swap |  | 1,364 |  |  |  | 1,364 |  | 783
Swap CDI x dollar |  |  |  | 4,203 |  | 4,203 |  | 4,203
|  | 1,364 |  | 4,203 |  | 5,567 |  | 4,986
· Cash flow hedge accounting The Company formally designated cash flow hedging relationships to protect highly probable future cash flows against US dollar fluctuations relating to sales made in U.S. dollars. In order to better reflect the accounting impacts of this foreign exchange hedging strategy on its profit, CSN designated part of its US dollar-denominated liabilities as a hedging instrument of its future exports. As a result, foreign exchange differences arising on translating the designated liabilities will be temporarily recognized in shareholders’ equity and allocated to profit or loss when such exports are carried out, which will allow recognizing the US dollar impact on liabilities and exports concurrently. Note that adopting hedge accounting does not entail contracting any financial instrument. As of December 31, 2019 the Company designated for hedge accounting US$2,530,713 in exports to be carried out between October 2019 to April 2026. To support these designated amounts, the Company prepared formal documentation indicating how hedging is aligned with the goal and strategy of CSN’s Risk Management by identifying the hedging instruments used, the hedging purpose, the nature of the hedged risk, and showing the expected high effectiveness of the designated relationships. The designated debt instruments total an amount equivalent to the portion of future exports. Thus, the exchange differences on translating the instrument and the hedged item are similar. According to the Company’s accounting policy, continuous assessments of the prospective and retrospective effectiveness must be carried out by comparing the designated amounts with the expected amounts, approved in Management’s budgets, and the actual export amounts. Through hedge accounting, the exchange gains and losses of the debt instruments do not immediately affect the Company’s profit or loss except to the extent that exports are carried out. The table below shows a summary of the hedging relationships as of December 31, 2019:
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 12/31/2019
Designation Date |  | Hedging Instrument |  | Hedged item |  | Type of hedged risk |  | Hedged period |  | Exchange rate on designation |  | Designated amounts (US$’000) |  | Amortizated part (USD'000) |  | Effect on Result (*) (R$'000) |  | Impact on Shareholders' equity (R$'000)
3/11/2014 |  | Export prepayments in US$ to third parties |  | Part of the highly probable future monthly iron ore exports |  | Foreign exchange - R$ vs. US$ spot rate |  | October 2016 - September 2019 |  | 2.4442 |  | 500,000 |  | (500,000) |  | (384,346) |  |
1/12/2014 |  | Export prepayments in US$ to third parties |  | Part of the highly probable future monthly iron ore exports |  | Foreign exchange - R$ vs. US$ spot rate |  | October 2015 - February 2019 |  | 2.5601 |  | 175,000 |  | (175,000) |  | (23,184) |  |
12/18/2014 |  | Export prepayments in US$ to third parties |  | Part of the highly probable future monthly iron ore exports |  | Foreign exchange - R$ vs. US$ spot rate |  | May 2020 |  | 2.6805 |  | 30,000 |  |  |  |  |  | (40,506)
12/18/2014 |  | Export prepayments in US$ to third parties |  | Part of the highly probable future monthly iron ore exports |  | Foreign exchange - R$ vs. US$ spot rate |  | May 2020 |  | 2.6780 |  | 35,000 |  |  |  |  |  | (47,345)
12/18/2014 |  | Export prepayments in US$ to third parties |  | Part of the highly probable future monthly iron ore exports |  | Foreign exchange - R$ vs. US$ spot rate |  | May 2020 |  | 2.6760 |  | 35,000 |  |  |  |  |  | (47,409)
07/21/2015 |  | Export prepayments in US$ to third parties |  | Part of the highly probable future monthly iron ore exports |  | Foreign exchange - R$ vs. US$ spot rate |  | July 2019 - March 2021 |  | 3.1813 |  | 60,000 |  | (15,000) |  | (11,254) |  | (38,223)
07/23/2015 |  | Export prepayments in US$ to third parties |  | Part of the highly probable future monthly iron ore exports |  | Foreign exchange - R$ vs. US$ spot rate |  | July 2019 - March 2021 |  | 3.2850 |  | 100,000 |  | (25,000) |  | (14,676) |  | (55,928)
07/23/2015 |  | Export prepayments in US$ to third parties |  | Part of the highly probable future monthly iron ore exports |  | Foreign exchange - R$ vs. US$ spot rate |  | October 2018 - October 2022 |  | 3.2850 |  | 30,000 |  | (12,000) |  | (4,315) |  | (13,423)
07/24/2015 |  | Export prepayments in US$ to third parties |  | Part of the highly probable future monthly iron ore exports |  | Foreign exchange - R$ vs. US$ spot rate |  | October 2018 - October 2022 |  | 3.3254 |  | 100,000 |  | (40,000) |  | (13,574) |  | (42,318)
07/27/2015 |  | Export prepayments in US$ to third parties |  | Part of the highly probable future monthly iron ore exports |  | Foreign exchange - R$ vs. US$ spot rate |  | October 2018 - October 2022 |  | 3.3557 |  | 25,000 |  | (10,000) |  | (3,242) |  | (10,125)
07/27/2015 |  | Export prepayments in US$ to third parties |  | Part of the highly probable future monthly iron ore exports |  | Foreign exchange - R$ vs. US$ spot rate |  | October 2018 - October 2022 |  | 3.3557 |  | 70,000 |  | (28,000) |  | (9,077) |  | (28,350)
07/27/2015 |  | Export prepayments in US$ to third parties |  | Part of the highly probable future monthly iron ore exports |  | Foreign exchange - R$ vs. US$ spot rate |  | October 2018 - October 2022 |  | 3.3557 |  | 30,000 |  | (12,000) |  | (3,890) |  | (12,150)
07/28/2015 |  | Export prepayments in US$ to third parties |  | Part of the highly probable future monthly iron ore exports |  | Foreign exchange - R$ vs. US$ spot rate |  | October 2018 - October 2022 |  | 3.3815 |  | 30,000 |  | (12,000) |  | (4,004) |  | (11,686)
3/8/2015 |  | Export prepayments in US$ to third parties |  | Part of the highly probable future monthly iron ore exports |  | Foreign exchange - R$ vs. US$ spot rate |  | Outubro de 2018 a Outubro de 2022 |  | 3.3940 |  | 355,000 |  | (84,091) |  | (12,990) |  | (172,488)
4/2/2018 |  | Bonds |  | Part of the highly probable future monthly iron ore exports |  | Foreign exchange - R$ vs. US$ spot rate |  | July 2018 - February 2023 |  | 3.3104 |  | 1,170,045 |  | (644,000) |  | (305,801) |  | (378,915)
7/31/2019 |  | Bonds and Export prepayments in US$ |  | Part of the highly probable future monthly iron ore exports |  | Foreign exchange - R$ vs. US$ spot rate |  | January 2020 - April 2026 |  | 3.7649 |  | 1,342,759 |  |  |  |  |  | (356,904)
Total |  |  |  |  |  |  |  |  |  |  |  | 4,087,804 |  | (1,557,091) |  | (790,353) |  | (1,255,770)
(*) In 2019, was recognized in other operating, the amount of (R$790,353). On December 31,2018 was (R$370,191). In the hedging relationships described above, the amounts of the debt instruments were fully designated for equivalent iron ore export portions. The movements in the hedge accounting amounts recognized in shareholders’ equity as of December 31, 2019 are as follows:
| 12/31/2018 |  | Movement |  | Realization |  | 12/31/2019
Cash flow hedge accounting | 1,441,295 |  | 604,828 |  | (790,353) |  | 1,255,770
Fair value of cash flow hedge, net of taxes | 1,441,295 |  | 604,828 |  | (790,353) |  | 1,255,770
As of December 31, 2019, the hedging relationships established by the Company were effective, according to the prospective tests conducted. Thus, no reversal for hedge accounting ineffectiveness was recognized. · Net investment hedge in foreign subsidiaries CSN has a natural foreign exchange exposure in Euros substantially arising from a loan made by a foreign subsidiary with functional currency in Reais, for the acquisition of investments abroad whose functional currency is Euro. Such exposure arises from converting the balance sheets of these subsidiaries for consolidation in CSN, and the exchange rate of the loans affected the income statement in the financial result item and the exchange variation of the net assets of the foreign operation directly affected the equity in other comprehensive income. As from September 1st, 2015 CSN began to adopt hedge of net investment to eliminate exposure and cover future fluctuations of the Euro on such loans. Non-derivative financial liabilities have been designated represented by loan agreements with financial institutions in the amount of € 120 million. The carrying amounts on December 31, 2019 are:
|  |  |  |  |  |  |  |  |  |  |  | 12/31/2019
Designation Date |  | Hedging Instrument |  | Hedged item |  | Type of hedged risk |  | Exchange rate on designation |  | Designated amounts (EUR'000) |  | Amortized part (USD’000) | Impact on shareholders' equity
09/30/2015 |  | Non-derivative financial liabilities in EUR – Debt contract |  | Investments in subsidiaries which EUR is the functional currency |  | Foreign exchange - R$ vs. EUR spot rate |  | 4.0825 |  | 120,000 |  | (96,000) | 1,469
Total |  |  |  |  |  |  |  |  |  | 120,000 |  | (96,000) | 1,469
The changes in the amounts related to net investment hedge recognized in shareholders’ equity as of December 31, 2019 are presented below:
| 12/31/2018 |  | Movement |  | 12/31/2019
Net Investment hedge accounting | 3,941 |  | (2,472) |  | 1,469
Fair value of net investment hedge in foreign operations | 3,941 |  | (2,472) |  | 1,469
On December 31, 2019 hedge relationships established by the Company found to be effective, according to prospective tests. Therefore, no reversal by ineffectiveness of the hedge was recorded. 12.c) Sensitivity analysis We present below the sensitivity analysis for currency risk and interest rate. · Sensitivity analysis of Derivative Financial Instruments and consolidated Foreign Exchange Exposure The Company considered scenarios 1 and 2 as 25% and 50% of deterioration for volatility of the currency, using as reference the closing exchange rate as of December 31, 2019. The currencies used in the sensitivity analysis and its scenarios are shown below:
|  |  |  |  |  |  |  | 12/31/2019
Currency |  | Exchange rate |  | Probable scenario |  | Scenario 1 |  | Scenario 2
USD |  | 4.0307 |  | 4.4946 |  | 5.0384 |  | 6.0461
EUR |  | 4.5305 |  | 5.0038 |  | 5.6631 |  | 6.7958
USD x EUR |  | 1.1234 |  | 1.1122 |  | 1.4043 |  | 1.6851
|  |  |  |  |  | 12/31/2019 |  |
Interest |  | Interest rate |  | Scenario 1 |  | Scenario 2 |  |
CDI |  | 4.40% |  | 5.50% |  | 6.60% |  |
TJLP |  | 5.57% |  | 6.96% |  | 8.36% |  |
Libor |  | 1.91% |  | 2.39% |  | 2.87% |  |
The effects on income statement, considering scenarios 1 and 2 are shown below:
|  |  |  |  |  |  |  |  |  | 12/31/2019
Instruments |  | Notional |  | Risk |  | Probable scenario (*) |  | Scenario 1 |  | Scenario 2
Hedge accounting of exports |  | 2,530,713 |  | Dollar |  | 1,173,998 |  | 2,550,136 |  | 5,100,272
Swap CDI x Dollar |  | 67,000 |  | Dollar |  | 31,081 |  | 67,514 |  | 135,028
Currency position |  |  |  |  |  |  |  |  |  |
(not including exchange derivatives above) |  | (3,713,598) |  | Dollar |  | (1,722,738) |  | (3,742,100) |  | (7,484,200)
Consolidated exchange position |  | (1,115,885) |  | Dollar |  | (517,659) |  | (1,124,450) |  | (2,248,900)
(including exchange derivatives above) |  |  |  |  |  |  |  |  |  |
Net Investment hedge accounting |  | 24,000 |  | Euro |  | 11,359 |  | 27,183 |  | 54,366
Currency position |  | (17,915) |  | Euro |  | (1,637) |  | (20,291) |  | (40,582)
Consolidated exchange position |  | 6,085 |  | Euro |  | 557 |  | 6,892 |  | 13,784
(including exchange derivatives above) |  |  |  |  |  |  |  |  |  |
Dollar-to-euro swap |  | 12,875 |  | Dólar |  | (2,463) |  | 9,021 |  | 15,944
(*) The probable scenarios were calculated considering the following variations for the risks: Real x Dollar – depreciation of Real by 11.51% / Real x Euro – depreciation of Real by 10.45%. Euro x Dollar – appreciation of Euro by 1.0%. Source: quotations from Central Bank of Brazil and Central Bank of Europe on 02/03/2020. · Sensitivity analysis of changes in interest rates The Company considered the scenarios 1, and 2 as 25% and 50% of evolution for volatility of the interest as of December 31, 2019.
|  |  |  |  |  |  |  |  |  |  |  | Consolidated
|  |  |  |  |  |  |  |  |  | Impact on profit or loss
Changes in interest rates |  | % p.a |  | Assets |  | Liabilities |  | Probable scenario (*) |  | Scenario 1 |  | Scenario 2
TJLP |  | 5.57 |  |  |  | (870,637) |  | (2,481) |  | (12,124) |  | (24,248)
Libor |  | 1.91 |  |  |  | (4,275,363) |  | (57,620) |  | (20,438) |  | (40,876)
CDI |  | 4.40 |  | 462,831 |  | (10,148,220) |  | (28,594) |  | (106,539) |  | (213,078)
(*) The sensitivity analysis is based on the assumption of maintaining as probable scenario the market rates at December 31, 2019 recorded in the Company´s assets and liabilities. 12.d) Liquidity risk It is the risk that the Company may not have sufficient net funds to honor its financial commitments as a result of mismatching of terms or volumes between scheduled receipts and payments. To manage cash liquidity in domestic and foreign currency, assumptions of future disbursements and receipts are established and daily monitored by the treasury area. The payment schedules for the long-term portions of borrowings, financing and debentures are shown in note 11. The following table shows the contractual maturities of financial liabilities and lease liabilities, including accrued interest.
|  |  |  |  |  |  |  |  | Consolidated
At December 31, 2019 | Less than one year |  | From one to two years |  | From two to five years |  | Over five years |  | Total
Borrowings, financing and debentures (note 11) | 5,152,234 |  | 6,888,149 |  | 9,087,030 |  | 6,963,290 |  | 28,090,703
Lease (Note 13a) | 35,040 |  | 44,873 |  | 44,872 |  | 349,605 |  | 474,390
Trade payables (note 12I) | 3,012,654 |  |  |  |  |  |  |  | 3,012,654
Trade payables – Drawee risk (note 12I) | 1,121,312 |  |  |  |  |  |  |  | 1,121,312
Dividends and interest on equity (note 13) | 13,252 |  |  |  |  |  |  |  | 13,252
IV - Fair values of assets and liabilities as compared to their carrying amounts Financial assets and liabilities at fair value through profit or loss are recognized in current and non-current assets and liabilities, and any gains and losses are recognized as financial income or financial expenses, respectively. The amounts are recognized in the financial statements at their carrying amounts, which are substantially similar to those that would be obtained if they were traded in the market. The fair values of other long-term assets and liabilities do not differ significantly from their carrying amounts, except the amounts below. The estimated fair values for certain consolidated long-term borrowings and financing were calculated at prevailing market rates, taking into consideration the nature, terms and risks similar to those of the recorded contracts, as below:
|  |  | 12/31/2019 |  |  |  | 12/31/2018
| Carrying amount |  | Fair value |  | Carrying amount |  | Fair value
Perpetual bonds | 4,036,186 |  | 3,706,553 |  | 3,880,074 |  | 2,850,615
Fixed Rate Notes | 8,090,297 |  | 8,345,471 |  | 6,745,132 |  | 7,595,765
(*) Source: Bloomberg · Credit risks The exposure to credit risks of financial institutions complies with the parameters established by financial policy. The Company performs detailed analyses of the financial condition of its clients and suppliers, and permanently monitors the credit limits established and the outstanding balance thereof. With regard to financial investments, the Company only made investments in institutions with low credit risk rated by rating agencies. Since part of the funds is invested in repurchase agreements that are backed by Brazilian Government Bonds, there is also exposure to the credit risk of the Brazilian State. Regarding the exposure to credit risk in accounts receivable and other receivables, the company has a credit risk committee, in which each new customer is analyzed individually regarding their financial condition, prior to the granting of the credit limit and payment terms and periodically revised, according to the periodicity procedures of each business area. · Capital Management The Company seeks to optimize its capital structure in order to reduce its financial costs and maximize the return to its shareholders. The table below shows the evolution of the capital structure of the Company with financing by equity and third-party capital.
Thousands of reais |  | 12/31/2019 |  | 12/31/2018
Shareholder's equity (equity) |  | 11,361,932 |  | 10,013,440
Borrowings and Financing (Third-party capital) |  | 27,967,036 |  | 28,827,074
Gross Debit/Shareholder's equity |  | 2.46 |  | 2.88

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