POSCO (ifrs-full:DisclosureOfFinancialInstrumentsExplanatory)

23.

Financial Instruments

(a) Classification of financial instruments

1) Financial assets as of December 31, 2016 and 2017 are as follows:


	2016		2017
	(in millions of Won)
Financial assets at fair value through profit or loss
Financial assets held for trading	￦	—		1,970
Derivatives assets held for trading		147,582		65,051
Derivatives assets designated as hedging instruments		—		3,239
Available-for-sale financial assets		2,514,924		1,978,115
Held-to-maturity financial assets		2,470		5,211
Loans and receivables		19,277,709		21,268,107

	￦	21,942,685		23,321,693

The Company applies fair value hedge which uses commodity futures as hedging instrument in order to hedge the risk of changes in fair value of product prices regarding fixed price sales or purchase commitments. Also, the Company applies cash flow hedge which uses currency swap as hedging instrument in order to hedge the risk of changes in cash flow from borrowings due to foreign currency fluctuations.

2) Financial liabilities as of December 31, 2016 and 2017 are as follows:


	2016		2017
	(in millions of Won)
Financial liabilities at fair value through profit or loss
Derivatives liabilities held for trading	￦	122,896		142,280
Derivatives liabilities designated as hedging instruments		—		13,230
Financial liabilities measured at amortized cost
Trade accounts and notes payable		4,117,798		3,477,678
Borrowings		22,704,998		21,063,657
Financial guarantee liabilities		108,161		88,407
Others		2,007,114		1,865,683

	￦	29,060,967		26,650,935

3) Finance income and costs by category of financial instrument for the years ended December 31, 2015, 2016 and 2017 were as follows:

① December 31, 2015


	Finance income and costs																					Other comprehensive loss
	Interest income (expense)			Gain and loss on valuation			Gain and loss on foreign currency			Gain and loss on disposal			Impairment loss			Others			Total			Other comprehensive loss
	(in millions of Won)
Derivatives assets	￦	—			129,949			—			357,715			—			—			487,664			—
Available-for-sale financial assets		1,956			—			—			138,782			(142,781	)		183,712			181,669			(187,854	)
Held-to-maturity financial assets		456			—			—			—			—			(688	)		(232	)		—
Loans and receivables		207,781			—			283,030			(15,406	)		—			(217	)		475,188			—
Derivatives liabilities		—			(46,748	)		—			(334,340	)		—			—			(381,088	)		—
Financial liabilities measured at amortized cost		(788,772	)		—			(665,583	)		—			—			(138,827	)		(1,593,182	)		—

	￦	(578,579	)		83,201			(382,553	)		146,751			(142,781	)		43,980			(829,981	)		(187,854	)

② December 31, 2016


	Finance income and costs
	Interest income (expense)			Gain and loss on valuation			Gain and loss on foreign currency			Gain and loss on disposal			Impairment loss			Others			Total			Other comprehensive income
	(in millions of Won)
Derivatives assets	￦	—			57,411			—			310,625			—			—			368,036			—
Available-for-sale financial assets		431			—			—			127,524			(248,404	)		41,000			(79,449	)		310,608
Held-to-maturity financial assets		266			—			—			—			—			38			304			—
Loans and receivables		181,778			—			140,751			(17,854	)		—			(172	)		304,503			—
Derivatives liabilities		—			(72,976	)		—			(332,415	)		—			—			(405,391	)		—
Financial liabilities measured at amortized cost		(658,726	)		—			(283,059	)		(61	)		—			(28,367	)		(970,213	)		—

	￦	(476,251	)		(15,565)			(142,308	)		87,819			(248,404	)		12,499			(782,210	)		310,608

③ December 31, 2017


	Finance income and costs
	Interest income (expense)			Gain and loss on valuation			Gain and loss on foreign currency			Gain and loss on disposal			Impairment loss			Others			Total			Other comprehensive loss
	(in millions of Won)
Financial assets held for trading	￦	—			16			—			—			—			—			16			—
Derivatives assets		—			(99,942	)		—			206,362			—			—			106,420			(143	)
Available-for-sale financial assets		60			—			—			418,789			(123,214	)		92,961			388,596			(31,389	)
Held-to-maturity financial assets		236			—			—			—			—			7			243			—
Loans and receivables		212,155			—			(607,837	)		(32,456	)		—			(304	)		(428,442	)		—
Derivatives liabilities		—			(61,809	)		—			(231,908	)		—			—			(293,717	)		—
Financial liabilities measured at amortized cost		(653,115	)		—			777,935			—			—			(9,546	)		115,274			—

	￦	(440,664	)		(161,735	)		170,098			360,787			(123,214	)		83,118			(111,610	)		(31,532	)

(b) Credit risk

1) Credit risk exposure

The carrying amount of financial assets represents the Company’s maximum exposure to credit risk. The maximum exposure to credit risk as of December 31, 2016 and 2017 are as follows:


	2016		2017
	(in millions of Won)
Cash and cash equivalents	￦	2,447,619		2,612,530
Financial assets held for trading		—		1,970
Derivative assets		147,582		68,290
Available-for-sale financial assets		51,649		192,866
Held-to-maturity financial assets		2,470		5,211
Loans and other receivables		7,104,940		9,099,444
Trade accounts and notes receivable, net		9,674,026		8,824,563
Long-term trade accounts and notes receivable, net		51,124		731,570

	￦	19,479,410		21,536,444

The Company provided financial guarantees for the repayment of loans of associates, joint ventures and third parties. As of December 31, 2016 and 2017, the maximum exposure to credit risk related to the financial guarantees amounted to ￦2,995,544 million and ￦3,135,084 million, respectively.

2) Impairment losses on financial assets

① Allowance for doubtful accounts as of December 31, 2016 and 2017 are as follows:


	2016		2017
	(in millions of Won)
Trade accounts and notes receivable	￦	558,125		634,129
Other accounts receivable		203,346		187,706
Loans		210,346		258,957
Other assets		5,954		13,672

	￦	977,771		1,094,464

② Impairment losses on financial assets for the years ended December 31, 2016 and 2017 were as follows:


	2016			2017
	(in millions of Won)
Bad debt expenses on trade accounts and notes receivable	￦	165,150			173,694
Other bad debt expenses^(*1)		50,225			100,920
Impairment loss on available-for-sale financial assets		248,404			123,214
Less: Recovery of allowance for other bad debt accounts		(12,658	)		(2,743	)
Less: Recovery of impairment loss on held-to-maturity financial assets		(38	)		(20	)

	￦	451,083			395,065

(*1)	Other bad debt expenses are mainly related to other receivables and loans.

③ The aging and impairment losses of trade accounts and notes receivable as of December 31, 2016 and 2017 are as follows:


	2016				2017
	Trade accounts and notes receivable		Impairment		Trade accounts and notes receivable		Impairment
	(in millions of Won)
Not due	￦	7,963,491		62,511		7,736,092		65,314
Over due less than 1 month		790,042		27,482		445,390		12,546
1 month – 3 months		205,394		8,955		170,682		742
3 months – 12 months		189,605		26,814		384,313		21,030
Over 12 months		1,134,743		432,363		1,453,785		534,497

	￦	10,283,275		558,125		10,190,262		634,129

④ The aging and impairment losses of other receivables as of December 31, 2016 and 2017 are as follows:


	2016				2017
	Other receivables		Impairment		Other receivables		Impairment
	(in millions of Won)
Not due	￦	1,641,924		23,958		1,888,726		9,672
Over due less than 1 month		197,772		75,207		235,559		35,539
1 month – 3 months		27,525		1,189		69,372		54,335
3 months – 12 months		82,337		20,300		96,942		64,467
over 12 months		357,401		298,992		365,202		296,322

	￦	2,306,959		419,646		2,655,801		460,335

⑤ Changes in the allowance for doubtful accounts for the years ended December 31, 2015, 2016 and 2017 were as follows:


	2015			2016			2017
	(in millions of Won)
Beginning	￦	954,153			999,678			977,771
Bad debt expenses		189,616			165,150			173,694
Other bad debt expenses		147,619			37,567			98,177
Others^(*1)		(291,710	)		(224,624	)		(155,178	)

Ending	￦	999,678			977,771			1,094,464

(*1)

Others for the year ended December 31, 2015 included a decrease of ￦199,003 million due to exclusion of POSCO PLANTEC Co., Ltd. from consolidation. Others for years ended December 31, 2016 and 2017, included decreases mainly due to write-off amounting to ￦216,657 million and ￦119,964 million, respectively.

1) Contractual maturities for non-derivative financial liabilities, including estimated interest, are as follows:


	Book value		Contractual cash flow		Within 1 year		1 year - 5 years		After 5 years
	(in millions of Won)
Trade accounts and notes payable	￦	3,477,678		3,478,992		3,466,001		12,991		—
Borrowings		21,063,657		22,928,112		12,093,516		9,200,416		1,634,180
Financial guarantee liabilities^(*1)		88,407		3,135,084		3,135,084		—		—
Other financial liabilities		1,865,683		1,874,667		1,721,004		153,663		—

	￦	26,495,425		31,416,855		20,415,605		9,367,070		1,634,180

(*1)	For issued financial guarantee contracts, the maximum amount of the guarantee is allocated to the earliest period in which the guarantee could be called.

2) The maturity analysis of derivative financial liabilities is as follows:


	Within 1 year		1 year - 5 years		Total
	(in millions of Won)
Currency forward	￦	9,744		300		10,044
Currency futures		9,632		74,834		84,466
Currency swaps		25,553		10,504		36,057
Interest swaps		153		—		153
Other forwards		24,790		—		24,790

	￦	69,872		85,638		155,510

(d) Currency risk

1) The Company has exposure to the risk that the fair value or future cash flows of a financial instrument will fluctuate because of the changes in foreign exchange rates. The exposure to currency risk as of December 31, 2016 and 2017 are as follows:


	2016				2017
	Assets		Liabilities		Assets		Liabilities
	(in millions of Won)
USD	￦	5,007,649		6,636,065		4,215,151		5,940,380
EUR		463,110		550,235		552,630		454,072
JPY		45,975		821,403		165,356		709,318
Others		219,444		286,112		220,723		117,632

2) As of December 31, 2016 and 2017, provided that functional currency against foreign currencies other than functional currency hypothetically strengthens or weakens by 10%, the changes in gain or loss during the years ended December 31, 2016 and 2017 were as follows:


	2016					2017
	10% increase			10% decrease		10% increase			10% decrease
	(in millions of Won)
USD	￦	(162,842	)		162,842		(172,523	)		172,523
EUR		(8,713	)		8,713		9,856			(9,856	)
JPY		(77,543	)		77,543		(54,396	)		54,396

(e) Interest rate risk

1) The carrying amount of interest-bearing financial instruments as of December 31, 2016 and 2017 are as follows:


	2016			2017
	(in millions of Won)
Fixed rate
Financial assets	￦	8,650,483			10,943,300
Financial liabilities		(10,794,724	)		(11,179,635	)

		(2,144,241	)		(236,335	)

Variable rate
Financial liabilities	￦	(12,024,683)			(9,977,040	)

2) Sensitivity analysis on the fair value of financial instruments with fixed interest rate

The Company does not account for any fixed rate financial assets and liabilities at fair value through profit or loss, and the Company does not designate derivatives (interest rate swaps) as hedging instruments under fair value hedge accounting model. Therefore a change in interest rates at the reporting date would not affect profit or loss.

3) Sensitivity analysis on the cash flows of financial instruments with variable interest rate

As of December 31, 2016 and 2017, provided that other factors remain the same and the interest rate of borrowings with floating rates increases or decreases by 1%, the changes in interest expense for the years ended December 31, 2016 and 2017 were as follows:

2016

2017

1% increase

1% decrease

1% increase

1% decrease

(in millions of Won)

Variable rate financial instruments

￦

(120,247)

120,247

(99,770

)

99,770

(f) Fair value

1) Fair value and book value

The carrying amount and the fair value of financial instruments as of December 31, 2016 and 2017 are as follows:


	2016				2017
	Book value		Fair value		Book value		Fair value
	(in millions of Won)
Financial assets measured at fair value
Available-for-sale financial assets^(*1)	￦	2,139,687		2,139,687		1,506,893		1,506,893
Financial assets held for trading		—		—		1,970		1,970
Derivatives assets		147,582		147,582		68,290		68,290

		2,287,269		2,287,269		1,577,153		1,577,153

Financial assets measured at amortized cost^(*2)
Cash and cash equivalents		2,447,619		2,447,619		2,612,530		2,612,530
Trade accounts and notes receivable, net		9,725,150		9,725,150		9,556,133		9,556,133
Loans and other receivables, net		7,104,940		7,104,940		9,099,444		9,099,444
Held-to-maturity financial assets		2,470		2,470		5,211		5,211

		19,280,179		19,280,179		21,273,318		21,273,318

Financial liabilities measured at fair value
Derivatives liabilities		122,896		122,896		155,510		155,510

Financial liabilities measured at amortized cost^(*2)
Trade accounts and notes payable		4,117,798		4,117,798		3,477,678		3,477,678
Borrowings		22,704,998		22,956,571		21,063,657		21,217,415
Financial guarantee liabilities		108,161		108,161		88,407		88,407
Others		2,007,114		2,007,114		1,865,683		1,865,683

	￦	28,938,071		29,189,644		26,495,425		26,649,183

(*1)	Available-for-sale financial assets which are not measured at fair value are not included.

(*2)

The fair value of financial assets and liabilities measured at amortized cost is measured using discounted cash flow method, and the fair value is mainly calculated for the disclosures in the note. On the other hand, the Company has not performed fair value measurement for the financial assets and liabilities measured at amortized cost except borrowings which are classified as fair value hierarchy level 2 since their carrying amounts approximate fair value.

2) The fair values of financial assets and financial liabilities by fair value hierarchy as of December 31, 2016 and 2017 are as follows:

①

December 31, 2016


	Level 1		Level 2		Level 3		Total
	(in millions of Won)
Financial assets
Available-for-sale financial assets	￦	1,800,943		—		338,744		2,139,687
Derivatives assets		—		137,236		10,346		147,582

		1,800,943		137,236		349,090		2,287,269

Financial liabilities
Derivatives liabilities	￦	—		122,896		—		122,896

②

December 31, 2017


	Level 1		Level 2		Level 3		Total
	(in millions of Won)
Financial assets
Available-for-sale financial assets	￦	1,137,662		17,812		351,419		1,506,893
Financial assets held for trading		—		1,970		—		1,970
Derivatives assets		—		68,290		—		68,290

		1,137,662		88,072		351,419		1,577,153

Financial liabilities
Derivatives liabilities	￦	—		155,510		—		155,510

3) Financial assets and financial liabilities classified as fair value hierarchy level 2

Fair values of derivatives are measured using the derivatives instrument valuation model such as discounted cash flow method and others. Inputs of the financial instrument valuation model include forward rate, interest rate and others. It may change depending on the type of derivatives and the nature of the underlying assets.

4) Financial assets and financial liabilities classified as fair value hierarchy level 3

①

Value measurement method and significant but not observable inputs for the financial assets classified as fair value hierarchy level 3 as of December 31, 2017 are as follows:

Fair value

Valuation technique

Inputs

Range of inputs

Effect on fair value
assessment with
unobservable input

(in millions of Won)

Available-for-sale financial assets

￦

235,803

Discounted cash flows

Growth rate

0% ~ 2.0%

As growth rate increases, fair value increases

Discount rate

0.5% ~ 11.9%

As discount rate increases, fair value decreases

14,775

Market comparable companies

Price multiple

1.085 ~ 5.245

As price multiple increases, fair value increases

100,841

Asset value approach

—

②

Sensitivity analysis of financial assets and financial liabilities classified as Level 3 of fair value hierarchy

If other inputs remain constant as of December 31, 2017 and one of the significant but not observable input is changed, the effect on fair value measurement is as follows:


	Input variable	Favorable changes		Unfavorable changes
	(in millions of Won)
Available-for-sale financial assets	Fluctuation 0.5% of growth rate	￦	5,713		4,641
	Fluctuation 0.5% of discount rate		27,238		22,724

③

Changes in fair value of financial assets and financial liabilities classified as Level 3 for the years ended December 31, 2016 and 2017 were as follows:


	2016			2017
	(in millions of Won)
Beginning	￦	466,407			349,090
Acquisition and others		47,493			129,766
Gain (loss) on valuations of derivatives		(59,829	)		(10,346	)
Other comprehensive income (loss)		(38,731	)		35,126
Impairment		(19,111	)		(107,934	)
Disposal and others		(47,139	)		(44,283	)

Ending	￦	349,090			351,419

POSCO | CIK:0000889132 |

ifrs-full:DisclosureOfFinancialInstrumentsExplanatory