| 11. | FINANCIAL GUARANTEE CONTRACTS | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accounting policy BLT elects on a contract by contract basis to apply IFRS 9 and IFRS 7 to financial guarantee contracts and not IFRS 17. Financial guarantee contracts are recognised at fair value on the date that BLT becomes a party to an irrevocable commitment. Financial guarantee contracts are subsequently stated at the higher of the amount determined by the ECL model and the amount initially recognised. Any difference between the redemption value guarantee obligation and the amount paid is recognised in the income statement. The fair value of financial guarantees is determined based on the present value of the difference in cash flows between the contractual payments required under the debt instrument and the payments that would be required without the guarantee, or the estimated amount that would be payable to a third party for assuming the obligations. Any difference between the redemption value guarantee obligation and the amount paid is recognised in the statement of profit or loss.
The fair value of financial guarantee contracts approximates their carrying amount because the ECL takes into account a market related discount factor. Pledges, guarantees and sureties BLT has pledged securities to The Prepaid Company Proprietary Limited (TPC) in relation to TPC's General Banking Facility and Revolving Credit Facility (working capital loan facilities) and TPC's term Facility. At year-end the TPC working capital loan facility amounted to R1.160 billion (2024: R1.240 billion), of which R1.160 billion (2024: R1.161 billion) had been utilised. At year-end TPC's Term Facility amounted to R311 million (2024: Rnil).
The Group has not been in breach in respect of these covenants. BLT and certain Group companies has pledged the following securities in respect of this facility:
BLT has issued a company cross-suretyship in favour of FirstRand Bank Limited amounting to R31.9 million (2024: R31.9 million) for the joint and several obligations of the following subsidiary companies to FirstRand Bank Limited:
The cross-suretyship of R31.9 million (2024: R31.9 million) relates to an overdraft facility amounting to R19.85 million, credit card facilities of R1.050 million, R11 million for settlement payment facilities and R11 million pre-settlement payment facilities for FEC hedging. Management assessed the likelihood of the guarantees being called as remote, and therefore no liability was recognised in the current or prior year. BLT issued guarantees to the value of R250 million (2024: R250 million) relating to Comm Equipment Company Proprietary Limited's (CEC) facility with African Bank, R75 million (2024: R75 million) relating to CEC's facility with a supplier and R28 million (2024: R2 million) to other Group suppliers. Management assessed the likelihood of the guarantees being called as remote, and therefore no liability was recognised in the current or prior year. Financial guarantee to Dark Fibre Africa (SPV5) In 2022, a debt owed by Cell C to a lessor was transferred to a newly established special purpose vehicle (SPV5) in exchange for a 10% shareholding in Cell C, which remains SPV5's sole asset. BLT issued a guarantee in favour of the lessor for the repayment of this debt, while TPC committed to providing R275 million ("repayment amount") in funding to SPV5 in exchange for a claim of R699 million in SPV5, enabling it to meet its repayment obligations. The debt will be settled in tranches over the period from 31 December 2024 to 31 December 2026. Exposure to credit risk The financial guarantee contracts expose BLT to credit risk, being the risk that BLT will incur financial loss if guaranteed parties fail to make payments as they fall due. The credit loss allowances for financial guarantee contracts are determined in accordance with the impairment provisions of 'IFRS 9 Financial Instruments', which requires a loss allowance to be recognised for all exposures to credit risk. The loss allowance for financial guarantee contracts is calculated based on 12-month expected losses if the credit risk has not increased significantly since initial recognition. In cases where the credit risk has increased significantly since initial recognition, the loss allowance is calculated based on lifetime ECLs. The loss allowance is updated to either 12-month or lifetime ECLs at each reporting date based on changes in the credit risk since initial recognition. If an exposure is considered to have a low credit risk at the reporting date, then it is assumed that the credit risk has not increased significantly since initial recognition. On the other hand, if the underlying loan is in arrears more than 90 days, then it is assumed that there has been a significant increase in credit risk since initial recognition. In determining the amount of ECLs, BLT has taken into account any historic default experience, the financial positions of the counterparty as well as the future prospects in the industries in which the counterparty operates. There has been no change in the estimation techniques or significant assumptions made during the current year. The maximum exposure to credit risk is the carrying amount of the loans subject to guarantee as presented below. Credit rating framework For purposes of determining the credit loss allowances on the financial guarantee exposure to credit risk is linked to the credit risk of another counterparty (TPC).
Credit loss allowances The following table sets out the loss allowance and measurement basis of ECLs for financial guarantee contracts by credit rating grade:
Reconciliation of loss allowances The following table shows the movement in the loss allowance for financial guarantee contracts:
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