Note 28 – Financial Instruments

General

The Group has international activity in which it is exposed to credit, liquidity and market risks (including currency, interest, inflation and other price risks). In order to reduce the exposure to these risks, the Group holds derivative financial instruments, (including forward transactions, interest rate swap (“SWAP”) transactions, and options) for the purpose of economic (not accounting) hedging of foreign currency risks, inflation risks, commodity price risks, interest risks and risks relating to the price of inputs.

This note presents information about the Group’s exposure to each of the above risks, and the Group’s objectives, policies and processes for measuring and managing the risk.

The risk management of the Group companies is executed by them as part of the ongoing current management of the companies. The Group companies monitor the above risks on a regular basis. The hedge policies with respect to all the different types of exposures are discussed by the boards of directors of the companies.

The comprehensive responsibility for establishing the base for the risk management of the Group and for supervising its implementation lies with the Board of Directors and the senior management of the Group.

B.	Credit risk

Counterparty credit risk is the risk that the financial benefits of contracts with a specific counterparty will be lost if a counterparty defaults on their obligations under the contract. This includes any cash amounts owed to the Group by those counterparties, less any amounts owed to the counterparty by the Group where a legal right of set-offs exists and also includes the fair values of contracts with individual counterparties which are included in the financial statements. The maximum exposure to credit risk at each reporting date is the carrying value of each class of financial assets mentioned in this note.

(1)	Exposure to credit risk The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk as of year end was:

	As at December 31,
	2023		2022
	$ Thousands
	Carrying amount
Cash and cash equivalents		696,838		535,171
Short-term and long-term deposits and restricted cash		16,769		61,136
Trade receivables and other assets		189,001		122,797
Short-term and long-term derivative instruments		-		16,730
Other investments		215,797		344,780
		1,118,405		1,080,614

Based on the credit risk profiles of the Group’s counterparties relating to the Group’s cash and cash equivalents, short-term and long-term deposits and restricted cash, trade receivables and other assets, short-term and long-term derivative instruments, the Group has assessed expected credit losses on the financial assets to be immaterial. The maximum exposure to credit risk for trade receivables as of year end, by geographic region was as follows:

	As at December 31,
	2023		2022
	$ Thousands
Israel		55,865		67,177
United States		12,129		6,723
		67,994		73,900

(2)	Aging of debts

Set forth below is an aging of the trade receivables:

	As at December 31
	2023		2022
	$ Thousands
Not past due nor impaired		67,994		73,900

No ECL has been recorded on any trade receivable amounts based on historical credit loss data and the Group’s view of economic conditions over the expected lives of the receivables.

Debt securities

The following table provides information about the movement of ECL on other investments as of December 31, 2023:

	ECL on other investments
	2023		2022		2021
	$ Thousands
Balance as at 1 January		732		-		-
Impairment loss on debt securities at FVOCI		642		732		-
Balance as at 31 December		1,374		732		-

C.	Liquidity risk

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and adverse credit and market conditions, without incurring unacceptable losses or risking damage to the Group’s reputation.

The Group manages its liquidity risk by means of holding cash balances, short-term deposits, other liquid financial assets and credit lines.

Set forth below are the anticipated repayment dates of the financial liabilities, including an estimate of the interest payments. This disclosure does not include amounts regarding which there are offset agreements:

	As at December 31, 2023
	Book value		Projected cash flows		Up to 1 year		1-2 years		2-5 years		More than 5 years
	$ Thousands
Non-derivative financial liabilities
Trade payables		70,661		70,661		70,661		-		-		-
Other current liabilities		84,656		84,656		84,656		-		-		-
Lease liabilities including interest payable *		61,428		140,049		4,725		4,856		12,923		117,545
Debentures (including interest payable) *		511,030		559,419		65,669		68,921		313,293		111,536
Loans from banks and others including interest *		1,023,916		1,316,647		173,743		100,209		375,479		667,216

		1,751,691		2,171,432		399,454		173,986		701,695		896,297

* Includes current portion of long-term liabilities.

	As at December 31, 2022
	Book value		Projected cash flows		Up to 1 year		1-2 years		2-5 years		More than 5 years
	$ Thousands
Non-derivative financial liabilities
Trade payables		95,036		95,036		95,036		-		-		-
Other current liabilities		17,681		17,681		17,681		-		-		-
Lease liabilities including interest payable *		37,570		46,938		17,812		2,855		6,756		19,515
Debentures (including interest payable) *		526,771		588,997		22,413		66,467		223,939		276,178
Loans from banks and others including interest *		640,348		793,946		44,142		74,438		172,343		503,023

		1,317,406		1,542,598		197,084		143,760		403,038		798,716

Includes current portion of long-term liabilities.

D.	Market risks

Market risk is the risk that changes in market prices, such as foreign exchange rates, the CPI, interest rates and prices of capital products and instruments will affect the fair value of the future cash flows of a financial instrument.

The Group buys and sells derivatives in the ordinary course of business, and also incurs financial liabilities, in order to manage market risks. All such transactions are carried out within the guidelines set by the Boards of Directors of the companies. For the most part, the Group companies enter into hedging transactions for purposes of avoiding economic exposures that arise from their operating activities. Most of the transactions entered into do not meet the conditions for recognition as an accounting hedge and, therefore, differences in their fair values are recorded on the statement of profit and loss.

(1)	CPI and foreign currency risk

Currency risk

The Group’s functional currency is the U.S. dollar. The exposures of the Group companies are measured with reference to the changes in the exchange rate of the dollar vis-à-vis the other currencies in which it transacts business.

The Group is exposed to currency risk on sales, purchases, assets and liabilities that are denominated in a currency other than the respective functional currencies of the Group entities. The primary exposure is to the Shekel (“NIS”).

The Group uses options and forward exchange contracts on exchange rates for purposes of hedging short-term currency risks, usually up to one year, in order to reduce the risk with respect to the final cash flows in dollars deriving from the existing assets and liabilities and sales and purchases of goods and services within the framework of firm or anticipated commitments, including in relation to future operating expenses.

The Group is exposed to currency risk in relation to loans it has taken out and debentures it has issued in currencies other than the dollar. The principal amounts of these bank loans and debentures have been hedged by swap transactions the repayment date of which corresponds with the payment date of the loans and debentures.

The Group has no exposure to foreign currency risk in respect of non-hedging derivative financial instruments in 2023. Relevant information for 2023 is as follows:

As at December 31, 2023

Currency/
linkage
receivable

Currency/
linkage
payable

Amount
receivable

Amount
payable

Expiration
dates

Fair value

$ Thousands

Forward contracts on exchange rates

Dollar

NIS

5,762

21,066

2024

(175

)

The Group’s exposure to foreign currency risk in respect of hedging derivative financial instruments is as follows:

As at December 31, 2023

Currency/
linkage
receivable

Currency/
linkage
payable

Amount
receivable

Amount
payable

Expiration
dates

Fair value

$ Thousands

Forward contracts on exchange rates

Dollar

NIS

2,622

9,498

2024

As at December 31, 2022

Currency/
linkage
receivable

Currency/
linkage
payable

Amount
receivable

Amount
payable

Expiration
dates

Fair value

$ Thousands

Forward contracts on exchange rates

Dollar

NIS

5,566

18,912

2023

641

Inflation risk

The Group has CPI-linked loans. The Group is exposed to payments of higher interest and principal as the result of an increase in the CPI. It is noted that part of the Group’s anticipated revenues will be linked to the CPI. The Group does not hedge this exposure beyond the expected hedge included in its revenues.

Breakdown of CPI-linked derivative instruments

The Group’s exposure to index risk with respect to derivative instruments used for hedging purposes is shown below:

As at December 31, 2023

Index receivable

Interest payable

Expiration date

Amount of linked principal

Fair value

$ Thousands

CPI-linked derivative instruments

Interest exchange contract

CPI

1.76

2036

81,051

10,268

As at December 31, 2022

Index receivable

Interest payable

Expiration date

Amount of linked principal

Fair value

$ Thousands

CPI-linked derivative instruments

Interest exchange contract

CPI

1.76

2036

89,619

9,353

Exposure to CPI and foreign currency risks

The Group’s exposure to CPI and foreign currency risk, based on nominal amounts, is as follows:

	As at December 31, 2023
	Foreign currency
	Shekel
	Unlinked			CPI linked			Other

Non-derivative instruments
Cash and cash equivalents		91,247			-			2,263
Short-term deposits and restricted cash		15,218			-			-
Trade receivables		55,865			-			-
Other current assets		10,841			-			72
Total financial assets		173,171			-			2,335

Trade payables		28,479			-			1,633
Other current liabilities		7,545			4,680			116
Loans from banks and others and debentures		779,808			413,811			-
Total financial liabilities		815,832			418,491			1,749

Total non-derivative financial instruments, net		(642,661	)		(418,491	)		586
Derivative instruments		-			10,268			-
Net exposure		(642,661	)		(408,223	)		586

	As at December 31, 2022
	Foreign currency
	Shekel
	Unlinked			CPI linked			Other

Non-derivative instruments
Cash and cash equivalents		165,186			-			1,102
Short-term deposits and restricted cash		35,695			-			-
Trade receivables		10,007			-			-
Other current assets		58,006			-			212
Long-term deposits and restricted cash		15,146			-			-
Total financial assets		284,040			-			1,314

Trade payables		36,669			-			14,734
Other current liabilities		20,930			5,494			640
Loans from banks and others and debentures		583,651			414,071			-
Total financial liabilities		641,250			419,565			15,374

Total non-derivative financial instruments, net		(357,210	)		(419,565	)		(14,060	)
Derivative instruments		-			9,353			-
Net exposure		(357,210	)		(410,212	)		(14,060	)

Sensitivity analysis

A strengthening of the dollar exchange rate by 5% – 10% against the following currencies and change of the CPI in rate of 1% – 2% would have increased (decreased) the net income or net loss and the equity by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant.

	As at December 31, 2023
	10% increase			5% increase			5% decrease			10% decrease
	$ Thousands
Non-derivative instruments
Shekel/dollar		1,208			604			(604	)		(1,208	)
Shekel/EUR		43			22			(22	)		(43	)
dollar/EUR		(15,855	)		(7,928	)		7,928			15,855

	As at December 31, 2023
	2% increase			1% increase			1% decrease			2% decrease
	$ Thousands
Non-derivative instruments
CPI		(6,114	)		(3,058	)		3,058			6,114

	As at December 31, 2022
	10% increase			5% increase			5% decrease			10% decrease
	$ Thousands
Non-derivative instruments
Shekel/dollar		(7,375	)		(3,687	)		3,687			7,375
Shekel/EUR		(1,094	)		(547	)		547			1,094

	As at December 31, 2022
	2% increase			1% increase			1% decrease			2% decrease
	$ Thousands
Non-derivative instruments
CPI		(6,306	)		(3,153	)		3,153			6,306

(2)	Interest rate risk

The Group is exposed to changes in the interest rates with respect to loans bearing interest at variable rates, as well as in relation to swap transactions of liabilities in foreign currency for dollar liabilities bearing a variable interest rate.

The Group has not set a policy limiting the exposure and it hedges this exposure based on forecasts of future interest rates.

The Group enters into transactions mainly to reduce the exposure to cash flow risk in respect of interest rates. The transactions include interest rate swaps and “collars”. In addition, options are acquired and written for hedging the interest rate at different rates.

Type of interest

Set forth below is detail of the type of interest borne by the Group’s interest-bearing financial instruments:

	As at December 31,
	2023			2022
	Carrying amount
	$ Thousands
Fixed rate instruments
Financial assets		311,951			549,467
Financial liabilities		(864,953	)		(837,698	)
		(553,002	)		(288,231	)

Variable rate instruments
Financial assets		54,408			4,827
Financial liabilities		(665,080	)		(324,887	)
		(610,672	)		(320,060	)

The Group’s assets and liabilities bearing fixed interest are not measured at fair value through the statement of profit and loss and the Group does not designate derivatives interest rate swaps as hedging instruments under a fair value hedge accounting model. Therefore, a change in the interest rates as of the date of the report would not be expected to affect the income or loss with respect to changes in the value of fixed – interest assets and liabilities.

A change of 100 basis points in interest rate at reporting date would have (decreased)/increased profit and loss before tax by the amounts below. This analysis assumes that all variables, in particular foreign currency rates, remain constant.

	As at December 31, 2023
	100bp increase			100 bp decrease
	$ Thousands
Variable rate instruments		(6,107	)		6,107

	As at December 31, 2022
	100bp increase			100 bp decrease
	$ Thousands
Variable rate instruments		(3,201	)		3,201

A change of 1.0% – 1.5% in the SOFR interest rate at reporting date would have increased/(decreased) the net income or net loss and the equity by the amounts below. This analysis assumes that all variables, in particular foreign currency rates, remain constant.

	As at December 31, 2023
	1.5% decrease			1.0% decrease			1.0% increase			1.5% increase
	$ Thousands

Long-term loans (SOFR)		(2,538	)		(1,691	)		1,691			2,538
Interest rate swaps (SOFR)		1,555			1,036			(1,036	)		(1,555	)

The Group’s exposure to SOFR interest rate risk for derivative financial instruments used for hedging is as follows:

As at December 31, 2023

Linkage

receivable

Interest

rate

Expiration

date

Amount of the linked reserve

Fair value

$ Thousands

Interest rate swaps

USD SOFR interest

0.83%-4.0

2030-2041

185,478

4,138

E.	Fair value

(1)

Fair value compared with carrying value

The Group’s financial instruments include mainly non-derivative assets, such as: cash and cash equivalents, investments, deposits and short-term loans, receivables and debit balances, investments and long-term receivables; non-derivative liabilities: such as: short-term credit, payables and credit balances, long-term loans, finance leases and other liabilities; as well as derivative financial instruments. In addition, fair value disclosure of lease liabilities is not required.

Due to their nature, the fair value of the financial instruments included in the Group’s working capital is generally identical or approximates the book value.

The following table shows in detail the carrying amount and the fair value of financial instrument groups presented in the financial statements not in accordance with their fair value.

	As at December 31, 2023
	Carrying amount		Fair value
Liabilities	$ Thousands
Non-convertible debentures		511,030		485,196
Long-term loans from banks and others (excluding interest)		898,546		906,911
Loans from non-controlling interests		125,252		127,960

	As at December 31, 2022
	Carrying amount		Fair value
Liabilities	$ Thousands
Non-convertible debentures		526,771		492,714
Long-term loans from banks and others (excluding interest)		516,195		528,011
Loans from non-controlling interests		124,153		113,673

The fair value of long-term loans from banks and others (excluding interest) is classified as level 2, and measured using the technique of discounting the future cash flows with respect to the principal component and the discounted interest using the market interest rate on the measurement date.

(2)

Hierarchy of fair value

The following table presents an analysis of the financial instruments measured at fair value, using an evaluation method.

The various levels were defined as follows:

– Level 1: Quoted prices (not adjusted) in an active market for identical instruments.

– Level 2: Observed data, direct or indirect, not included in Level 1 above.

– Level 3: Data not based on observed market data.

Other investments are measured at fair value through other comprehensive income (Level 1).

Derivative instruments are measured at fair value using a Level 2 valuation method – observable data, directly or indirectly, which are not included in quoted prices in an active market for identical instruments. See Note 28.D.1 for further details.

Level 3 financial instrument measured at fair value

As of December 31, 2023, the fair value of long-term investment (Qoros) remains at zero (2022: $nil).

(3)	Data and measurement of the fair value of financial instruments at Level 2 and 3

Level 2

The fair value of forward contracts on foreign currency is determined using trading programs that are based on market prices. The market price is determined based on a weighting of the exchange rate and the appropriate interest coefficient for the period of the transaction along with an index of the relevant currencies.

The fair value of contracts for exchange (SWAP) of interest rates and fuel prices is determined using trading programs which incorporate market prices, the remaining term of the contract and the credit risks of the parties to the contract.

The fair value of currency and interest exchange (SWAP) transactions is valued using discounted future cash flows at the market interest rate for the remaining term.

The fair value of transactions used to hedge inflation is valued using discounted future cash flows which incorporate the forward CPI curve, and market interest rates for the remaining term.

If the inputs used to measure the fair value of an asset or liability might be categorized in different levels of the fair value hierarchy, then the fair value measurement is categorized in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement.

The fair value of marketable securities held for trade is determined using the ‘Discounts for Lack of Marketability’ (“DLOM”) valuation method, which is a method used to calculate the value of restricted securities. The method purports that the only difference between a company’s common stock and its restricted securities is the lack of marketability of the restricted securities which is derived from the price difference between both prices.

Level 3

As of December 31, 2023 and 2022, the fair value of the long-term investment (Qoros) was based on the present value of the expected cash flows. Included in the long-term investment (Qoros) are the 12% interests in Qoros (as described in Note 10.3) and the put option (as described in Note 10.2). For the purposes of management’s fair value assessment of the long-term investment (Qoros), management takes into consideration factors including market risk and credit risk exposures, publicly available information and financial information of the New Qoros Investor and Qoros for the year ended December 31, 2023 and 2022.

The following table shows the valuation techniques used in measuring Level 3 fair values as of December 31, 2023 and 2022, as well as the significant unobservable inputs used.

Type	Valuation technique	Significant unobservable data	Inter-relationship between significant unobservable inputs and fair value measurement
Long-term investment (Qoros)	The Group assessed the fair value of the long-term investment (Qoros) using the present value of the expected cash flows.	The likelihood of expected cash flows.	The estimated fair value would increase if the likelihood of expected cash flows increase.