L. FINANCIAL INSTRUMENTS
L1 CLASSIFICATION AND MEASUREMENT OF FINANCIAL INSTRUMENTS
L1.1 Accounting policy
 

Financial instruments are monetary contracts that give rise to a financial asset (a right to receive cash) of one entity and a financial liability (an obligation to deliver cash) or equity instrument of another entity.

 

Recognition
Financial assets and financial liabilities are recognised in the statement of financial position when the Group becomes party to the contractual provisions of the instrument. The Group classifies financial instruments, or their component parts, on initial recognition as a financial asset, a financial liability or an equity instrument in accordance with the Group's business model (i.e. whether the Group's objective is to hold the assets to collect contractual cash flows or hold to collect and sell or other).

 

Business model assessment
The Group makes an assessment of the objective of the business model in which a financial asset is held at a portfolio level because this best reflects the way the business is managed and the way that information is provided to management. The information considered includes:

  • The Group's strategic objectives for the portfolio of assets;
  • How the performance of the portfolio is evaluated and reported to management;
  • The risks that affect the performance of the portfolio; and
  • The historic frequency, volume and timing of sales of financial assets, and the reasons for such sales.
 

Assessment of whether contractual cash flows are solely payments of principal and interest (SPPI)
For the purposes of this assessment "principal" is defined as the fair value of the financial asset on initial recognition. "Interest" is defined as consideration for the time value of money and for the credit risk associated with the principal amount outstanding during a particular period of time and for other basic lending risks and costs (e.g. liquidity risk and administrative costs), as well as profit margin.

 

In assessing whether the contractual cash flows are solely payments of principal and interest, the Group considers the contractual terms of the instrument. In making this assessment the Group considers:

  • contingent events that would change the amount or timing of cash flows;
  • terms that may adjust the contractual coupon rate, including variable features;
  • prepayment and extension features; and
  • terms that limit the Group's claim to cash flows from specific assets (e.g. non-recourse features).
 
Initial measurement

FVTPL

  Financial instruments which are categorised and designated at initial recognition as being at FVTPL are initially recognised at fair value. Transaction costs, which are directly attributable to the acquisition or issue of these financial instruments, are recognised immediately in profit or loss.

Amortised Cost
and FVTOCI

  Financial instruments which are not carried at FVTPL are initially measured at fair value plus transaction costs that are directly attributable to the acquisition or issue of the financial instruments.

Day-one gains
or losses

  A day-one gain or loss arises when the transaction price of a financial instrument designated as FVTPL differs from the fair market value on the date of acquisition. If the day-one fair value is calculated based on a valuation methodology which includes assumptions derived from unobservable inputs, the
day-one gain or loss is deferred. The day-one gain or loss is only recognised in profit or loss to the extent that there is a change in a factor (including time) that market participants would take into account when pricing the financial instrument, the unobservable inputs become observable, or on derecognition of the financial instrument.

 
Presentation

Offset

  Financial assets and financial liabilities are offset and the net amount reported in the statement of financial position when the Group has an enforceable right to set off the asset and liability, and intends to settle the asset and liability on a net basis or to realise the asset and settle the liability simultaneously.

 

Derecognition of financial instrument
The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the entity is recognised as a separate asset or liability. The Group derecognises a financial liability when its contractual obligations are discharged, cancelled or have expired.

 

Fair value hierarchy
In addition to the subsequent measurement classification, financial instruments carried at fair value are further classified into 3 levels based on the lowest level of input significant to the overall valuation.

 

Level 1

 

Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date. The Group has no level 1 financial instruments.

Level 2

 

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. The Group has classified derivatives as level 2.

Level 3

 

Level 3 inputs are unobservable inputs. These are used to measure fair value to the extent that relevant observable inputs are not available, to cater for situations in which there is little, or no, market activity for the asset or liability at the measurement date. The Group has classified its investment in Hystead as level 3.


L1.2 Accounting classifications, carrying and fair values
 

The following table reflects the carrying amounts and fair values of financial assets and financial liabilities, including their levels in the fair value hierarchy. It does not include fair value information for financial assets and financial liabilities not measured at fair value if the carrying amount is a reasonable approximation of the fair value.

 
  Carrying amount Fair value and fair value hierarchy
  (The Group has no financial instruments classified as level 1)
Group
June 2020
Fair value
through
profit or
loss
R'000
  Amortised
cost
R'000
  Total
R'000
  Level 2
R'000
  Level 3
R'000
  Total
R'000
Financial assets measured at fair value
Financial asset 532 972     532 972     532 972   532 972  
  532 972     532 972     532 972   532 972  
Financial assets not measured at fair value
Loans receivable - current   681 215   681 215   n/a   n/a   n/a  
Trade and other receivables (including held-for-sale) (1)   226 747   226 747   n/a   n/a   n/a  
Cash and cash equivalents (including held-for-sale)   876 544   876 544   n/a   n/a   n/a  
  1 784 506   1 784 506        
Financial liabilities measured at fair value
Derivative instruments - non-current 233 669     233 669   233 669     233 669  
Derivative instruments - current 51 980     51 980   51 980     51 980  
Financial guarantees - non-current 127 066     127 066     127 066   127 066  
  412 715     412 715   285 649   127 066   412 715  
Financial liabilities not measured at fair value
Long-term portion of interest-bearing borrowings (including held-for-sale)   4 074 183   4 074 183   n/a   n/a   n/a  
Short-term portion of interest-bearing borrowings (including held-for-sale)   3 776 163   3 776 163   n/a   n/a   n/a  
Trade and other payables (including held-for-sale)(2)   346 315   346 315   n/a   n/a   n/a  
    8 196 661   8 196 661        
 
June 2019                      
Financial assets measured at fair value  
Financial asset 218 444     218 444     218 444   218 444  
Derivative instruments - non-current 619     619   619     619  
Derivative instruments - current 2 691     2 691   2 691     2 691  
  221 754     221 754   3 310   218 444   221 754  
Financial assets not measured at fair value
Loans receivable - non-current   18 847   18 847        
Loans receivable - current 423 139   909 967   1 333 106     423 139   423 139  
Trade and other receivables (including held-for-sale) (1)   174 970   174 970        
Cash and cash equivalents (including held-for-sale)   1 326 849   1 326 849        
  423 139   2 430 633   2 853 772     423 139   423 139  
Financial liabilities measured at fair value
Derivative instruments - non-current 60 224     60 224   60 224     60 224  
Derivative instruments - current 7 339     7 339   7 339     7 339  
Financial guarantees - non-current 110 401     110 401     110 401   110 401  
  177 964     177 964   67 563   110 401   177 964  
Financial liabilities not measured at fair value
Long-term portion of interest-bearing borrowings (including held-for-sale)   7 365 864   7 365 864        
Short-term portion of interest-bearing borrowings (including held-for-sale)   1 019 499   1 019 499        
Trade and other payables (including held-for-sale) (2)   373 679   373 679        
    8 759 042   8 759 042        
 
(1) This balance excludes the following: Prepayments, municipal deposits and sundry receivables.
(2) This balance excludes the following: Rent received in advance, municipal and employee provisions and sundry payables

 
  Carrying amount Fair value and fair value hierarchy
  (The Company has no financial instruments classified as level 1)
Company
June 2020
Fair value
through
profit or
loss
R'000
  Amortised
cost
R'000
Total
R'000
  Level 2
R'000
  Level 3
R'000
  Total
R'000
Financial assets measured at fair value  
Financial asset 532 972     532 972     532 972   532 972  
  532 972     532 972     532 972   532 972  
Financial assets not measured at fair value
Loans receivable - non-current   29 108   29 108   n/a   n/a   n/a  
Trade and other receivables (1)   148 646   148 646   n/a   n/a   n/a  
Cash and cash equivalents   726 362   726 362   n/a   n/a   n/a  
    904 116   904 116        
Financial liabilities measured at fair value
Derivative instruments - non-current 233 669     233 669   233 669     233 669  
Derivative instruments - current 48 190     48 190   48 190     48 190  
Financial guarantees - non-current 127 066     127 066     127 066   127 066  
Financial guarantees - current 114 861     114 861     114 861   114 861  
  523 786     523 786   281 859   241 927   523 786  
Financial liabilities not measured at fair value
Long-term portion of interest-bearing borrowings   4 074 182   4 074 182   n/a   n/a   n/a  
Short-term portion of interest-bearing borrowings   425 000   425 000   n/a   n/a   n/a  
Loans payable - non-current   761 125   761 125   n/a   n/a   n/a  
Trade and other payables (2)   284 594   284 594   n/a   n/a   n/a  
    5 544 901   5 544 901        
 
June 2019                        
Financial assets measured at fair value          
Financial asset 218 444     218 444     218 444   218 444  
Derivative instruments - non-current 619     619   619     619  
Derivative instruments - current 2 691     2 691   2 691     2 691  
  221 754     221 754   3 310   218 444   221 754  
Financial assets not measured at fair value
Loans receivable - non-current   72 450   72 450        
Trade and other receivables (1)   94 359   94 359        
Cash and cash equivalents   1 062 412   1 062 412        
    1 229 221   1 229 221        
Financial liabilities measured at fair value
Derivative instruments - non-current 59 408     59 408   59 408     59 408  
Derivative instruments - current 7 326     7 326   7 326     7 326  
Financial guarantees - non-current 296 424     296 424     296 424   296 424  
  363 158     363 158   66 734   296 424   363 158  
Financial liabilities not measured at fair value
Long-term portion of interest-bearing borrowings   3 649 784   3 649 784        
Short-term portion of interest-bearing borrowings   1 008 000   1 008 000        
Loans payable - non-current   761 125   761 125        
Trade and other payables (2)   310 494   310 494        
    5 729 403   5 729 403        
 
(1) This balance excludes the following: Prepayments, municipal deposits and sundry receivables.
(2) This balance excludes the following: Rent received in advance, municipal and employee provisions and sundry payables.

L2 FAIR VALUE MEASUREMENT METHODOLOGIES
L2.1 Fair value measurement techniques
  The following tables show the valuation techniques used in measuring level 2 and 3 fair values, as well as the significant unobservable inputs used:
 
  Type   Valuation technique   Unobservable
inputs
  Movement
in input
  Effect on estimated
fair value
 

Financial asset
– Hystead
– level 3

 

Discounted cash flow: The valuation is calculated as the present value of the anticipated future net cash flows expected to be generated by the underlying shopping centres after deducting the head office costs within the Hystead Group.

The cash flow projections include specific estimates for 10 years (2019: 10 years). The expected net cash flows are discounted using a risk-adjusted discount rate as well as a risk-adjusted cap rate.

 

Annual growth rate

Terminal growth rate

Exit cap rate

Discount rate

 

Increase

Decrease

Increase

Decrease

 

Increase

Decrease

Decrease

Increase

 

Derivatives
– level 2

 

Market comparison: The valuation of the derivative instruments (interest rate swaps) was determined by discounting the future cash flows using the JIBAR or OIS swap curves as applicable. Similar contracts are traded in active markets and the fair values are based on actual transactions in similar instruments.

 

Projected forward interest rate

 

Increase

 

Increase

 

Financial guarantees
– level 3

 

Discounted cash flow: Contractual future cash flows related to each loan were calculated and then multiplied by an appropriate probability of default (PD) and loss given default (LGD). The amounts were then discounted (using risk-free rates) to either the inception date of the exposure or the valuation date (30 June 2020) to obtain the day-one fair value or expected credit loss (ECL) respectively.

For the ECL calculations, these can be calculated for either a 12-month period (stage 1) or lifetime (stage 2). Depending on the stage or exposure, the relevant ECL value was chosen and compared to the day-one fair value.

 

Probability of default

(PD)

Loss given default

(LGD)

Credit rating

 

Increase

Decrease

Decrease

 

Increase

Decrease

Increase

 

Unlisted equity investment – Edcon – level 3

 

In April 2020 Edcon filed for business rescue. Management's best estimate of the fair value of Edcon is zero resulting in an accumulated impairment of R57m until there is tangible evidence of any liquidation distribution or other recovery of this investment.

 

Business rescue plan

 

n/a

 

n/a


L2.1.1 Transfers between levels 2 and 3
 

There were no transfers in either direction between levels 1 and 2 during the current or prior years, nor were there any transfers out of level 2 or 3 during the current or prior years.

L2.1.2 Additional disclosures for level 3 financial instruments
  Additional details on the fair values of level 3 financial instruments are disclosed in the following notes:
 
  Derivatives   Financial
asset
Financial
guarantees
 
Valuation assumptions - unobservable inputs H2.6   E6.8 H3.7  
Reconciliations of movement H2.4.2 and H2.5.2   E6.5 H3.6  
Valuation sensitivities H2.7   E6.9 H3.8