3.7 Financial instruments at fair value through profit or loss
Opening balance  —  (301 716) 202 267  (158 638) —  85 003  2 472  (170 612)  
Additions  —  —  —  (7 654) (77 524) —  34 500  (50 678)  
Repayments  —  —  —  —  —  —  (18 877) (18 877)  
Derecognition of put option liability on disposal of VAS operations (refer to note 11) —  —  —  214 559  —  —  —  214 559   
Fair value (loss)/gain recognised in profit or loss  —  (48 694) (66 371) (48 267) —  19 826  (7 142) (150 648)  
Other movements  —  —  (9 292) —  —  —  —  (9 292)  
Closing balance  —  (350 410) 126 604  —  (77 524) 104 829  10 953  (185 548)  
Financial assets at fair value through profit or loss – included in current assets  —  —  126 604  —  —  —  18 105  144 709   
Financial assets at fair value through profit or loss – included in non-current assets  —  —  —  —  —  104 829  —  104 829   
Financial liabilities at fair value through profit or loss  —  (350 410) —  —  (77 524) —  (7 152) (435 086)  
Closing balance  —  (350 410) 126 604  —  (77 524) 104 829  10 953  (185 548)  
Unrealised (losses)/gains  (48 694) (66 371) —  (77 524) 19 826  (7 142) (179 905)  

Bond notes and liquidity support

With effect from 2 August 2017, The Prepaid Company purchased bond notes, issued by Cedar Cellular Investments 1 Proprietary Limited (SPV1), from Saudi Oger Limited with a capital redemption value of USD42 million and with a coupon rate of 8.625% per annum for a purchase consideration of USD18 million. The Prepaid Company was entitled to assign its rights and obligations, in whole or in part, to a nominee. Accordingly, it has assigned such rights and obligations in respect of 50% of the bond notes, resulting in an effective purchase consideration of USD9 million with a capital redemption value of USD21 million.

As part of the restructure of the debt into Cell C by third-party lenders, The Prepaid Company will be required to provide liquidity support to Magnolia Cellular Investment 2 (RF) Proprietary Limited (SPV2), which is 100% held by 3C Telecommunications Proprietary Limited, of up to USD80 million, which liquidity support will be provided over 24 months and will be in the form of subordinated funding to SPV2. Oger Telecoms contributed USD36 million of the aforesaid USD80 million thus reducing The Prepaid Companyís obligation in this regard to a maximum of USD44 million. As at 31 May 2020, the Group had contributed USD24 million to SPV2 towards the latter amount.

Fair value estimate

SPV1 and SPV2 own 11.8% and 16% of the shares issued by Cell C Limited respectively. No other assets are held by these entities, and as such the Groupís bond note and liquidity support arrangements will be settled only when the value of the Cell C shares is realised by SPV1 and SPV2. The substance of these arrangements is therefore derivatives exposing the Group to the share price of Cell C.

The derivatives are initially recognised by the Group at fair value and subsequently measured at fair value through profit or loss.

The derivatives are level 3 instruments in the fair value hierarchy.

The derivatives are not traded in an active market and therefore the fair value is determined by the use of a valuation technique. In the prior year, the valuation was performed using a Monte Carlo simulation taking into account the value of Cell C Limited. As no value was attributed to Cell C in the prior year, the recoverable value relating to SPV1 and SPV2 reduced to zero. A liability of USD20 million, in line with the liquidity support obligation to SPV2, remained payable as at 31 May 2019. This amount was included in financial liabilities at ďfair value through profit or lossĒ. As at 31 May 2020, a qualified independent third-party specialist once again attributed no value to Cell C Limited. As a result thereof, the value of SPV1 and SPV2 remains at zero and the liquidity support of USD20 million remains payable, with the fair value movement in SPV2 relating to the foreign exchange rate thereon.

Loans at fair value

The Prepaid Company (TPC) acquired a 48% share in Glocell Distribution Proprietary Limited (Glocell Distribution) on 30 June 2018.

In terms of an agreement entered into between TPC and Glocell Proprietary Limited (Glocell) during the year ended 31 May 2019, Glocell pledged its 40% shareholding in Glocell Distribution to TPC in the event of Glocell defaulting on amounts owing to TPC. The right to enforce this pledge is currently not exercisable. This right only becomes exercisable once Glocell has settled its outstanding debt of R113.2 million (2019: R121.7 million) to Investec Bank Limited.

Glocellís ability to repay TPC the amounts owing to it is dependent on the extent of dividends receivable from Glocell Distribution on a piecemeal basis. The contractual terms of the loan have no fixed repayment dates, and in the event that Glocell defaults on the loan, the only recourse the Group has is to the shares of Glocell Distribution held by Glocell. As such, the financial instrument has been classified and measured at fair value through profit or loss.

A fair value downward adjustment of R75.7 million (2019: R141 million) of the R202 million (2019: R343 million) owing to TPC was required due to unfavourable trading conditions, with specific reference to starter packs, exacerbated by the impact of COVID-19 on Glocell Distributionís financial performance. The prior year downward adjustment was required due to unfavourable wholesale trading conditions.

Fair value estimate

A discounted cash flow valuation of Glocell Distribution has been used to determine the value of Glocellís 40% shareholding in Glocell Distribution. This is used to determine the fair value of the loan. This valuation has been performed by the finance department of the Group using cash flow projections based on forecasts for up to five years, which are based on assumptions of the business, industry and economic growth.

The derivatives are level 3 instruments in the fair value hierarchy.

Key assumption applied to value-in-use calculation 2020 
Discount rate (pre-tax) 21.0    20.7   
Terminal growth rate 4.5    4.2   
Effect on fair value due to change in key assumption      (Decrease) / increase
   in loan at fair value
Change in discount rate   (12 147)   (12 122)  
  (1)   14 414    13 679   
Change in terminal growth rate   21 048    17 386   
  (2)   (14 994)   (13 627)  

Put option liability

Put option liabilities represent contracts that impose an obligation on the Group to purchase the shares of a subsidiary for cash or another financial asset. Put option liabilities, where the risks and rewards reside with the non-controlling interest, are initially raised from the transaction with non-controlling interest reserve in equity at the present value of the expected redemption amount payable. Subsequent revisions to the expected redemption amount payable as well as the unwinding of the discount related to the measurement of the present value of the put option liability, are recognised in the income statement. Where a put option liability expires unexercised or is cancelled, the carrying value of the financial liability is released to equity. The Group recognises the non-controlling interest over which a put option exists at acquisition date. Where a put option liability is substantially modified it is accounted for as an extinguishment of the original financial liability under IFRS 9 and, to the extent applicable, a new financial liability is recognised. The difference arising between the carrying amount of original financial liability and the fair value of the new financial instrument is recognised in profit or loss.

Critical accounting judgements and assumptions

Management assessed on initial recognition of the put option liability that the risks and rewards of ownership remained with the non-controlling interest and therefore no adjustment was required to the non-controlling interest.

Derivative liability

The derivative liability relates to the put option liability for Airvantage. For further information, refer to note 11.

Surety loans receivable

Surety loans relate to the personal sureties that B Levy and M Levy signed for the loan owed by 2DFine Holdings Mauritius to Gold Label Investments Proprietary Limited. Their liability is limited to the difference between the loan owing to Gold Label Investments Proprietary Limited and the value of 16.95% of the shares in Oxigen Services India Private Limited (Oxigen Services) and 17.29% of the shares in Oxigen Online Services India Private Limited (Oxigen Online) and as such is a level 3 instrument in the fair value hierarchy. In the current year payment terms for the surety loans were renegotiated, with the payments being agreed as instalments payable annually commencing on 30 September 2021 and ending on 30 September 2030. Based on the payment terms, the entire surety loan receivable is recognised as non-current. In the prior year the loan owing to Gold Label Investments Proprietary Limited was impaired due to a decrease in the fair value of Oxigen Services and Oxigen Online resulting in the Group recognising a receivable on the surety claim.