NOTE 22 – FINANCIAL INSTRUMENTS

Categories of financial assets and financial liabilities

The following tables set out, for financial assets and liabilities as of December 31, 2020 and 2019, the supplementary disclosures on financial instruments required by IFRS 7 and the detail of gains and losses established by IFRS 9.


		Fair value
As of December 31, 2020			accounted
		accounted	through other
	Amortized	through profit	comprehensive
	cost	or loss	Income	Total
Assets
Cash and cash equivalents	8,191	10,336	—	18,527
Investments	171	6,496	—	6,667
Trade receivables	19,015	—	—	19,015
Other receivables (1)	1,475	2	—	1,477
Total	28,852	16,834	—	45,686

Liabilities
Trade payables	41,806	—	—	41,806
Financial debt	199,673	170	357	200,200
Salaries and social security payables	15,176	—	—	15,176
Leases liabilities	10,302	—	—	10,302
Other liabilities (1)	475	—	—	475
Total	267,432	170	357	267,959

(1)

Only includes financial assets and liabilities according to the scope of IFRS 7.


		Fair value
As of December 31, 2019			accounted	accounted
			through	through other
	Amortized		profit or	comprehensive
	cost		loss	Income	Total
Assets
Cash and cash equivalents	3,296		31,531	—	34,827
Investments	1,452		491	—	1,943
Trade receivables	23,208		—	—	23,208
Other receivables (2)	1,918		222	—	2,140
Total	29,874		32,244	—	62,118

Liabilities
Trade payables	46,721		—	—	46,721
Financial debt	206,418		329	181	206,928
Salaries and social security payables	14,705		—	—	14,705
Leases liabilities	8,592		—	—	8,592
Other liabilities (2)	396		—	—	396
Total	276,832		329	181	277,342

(2)

Only includes financial assets and liabilities according to the scope of IFRS 7.

Gains and losses by category – Year 2020


	Net gain/(loss)	Of which interest
Financial assets at amortized cost	9,300	1,306
Financial liabilities at amortized cost	(30,250)	(18,388)
Financial assets at fair value through profit or loss	351	388
Financial liabilities at amortized cost through profit or loss	(1,486)	—
Total	(22,085)	(16,694)

Gains and losses by category – Year 2019


	Net gain/(loss)	Of which interest
Financial assets at amortized cost	10,103	890
Financial liabilities at amortized cost	(27,021)	(18,653)
Financial assets at fair value through profit or loss	3,540	1,315
Financial liabilities at fair value through profit or loss	(1,620)	—
Total	(14,998)	(16,448)

Fair value hierarchy and other disclosures

IFRS 7 establishes a hierarchy of fair value, based on the information used to measure the financial assets and liabilities and also establishes different valuation techniques. According to IFRS 7, valuation techniques used to measure fair value shall maximize the use of observable inputs.

The measurement at fair value of the financial instruments of Telecom are classified according to the three levels set out in IFRS 7:

-Level 1: Fair value determined by quoted prices (unadjusted) in active markets for identical assets or liabilities.

-Level 2: Fair value determined based on inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (e.g. as prices) or indirectly (e.g. derived from prices).

-Level 3: Fair value determined by unobservable inputs where the reporting entity is required to develop its own assumptions.

Financial assets and liabilities recognized at fair value as of December 31, 2020 and 2019, their inputs, valuation techniques and the level of hierarchy are listed below:

Mutual Funds: These investments are included in Cash and cash equivalents and Investments. Telecom and its subsidiaries have other short-term investments amounting to $8,797 and $31,531 as of December 31, 2020 and 2019, respectively. The fair value is based on information obtained from active markets and corresponds to quoted market prices as of year-end; therefore, its valuation is classified as Level 1.

Government bonds: These bonds are included in “Investments” in the consolidated statement of financial position. As of December 31, 2020 and 2019 Telecom and its subsidiaries have Government bonds in an amount of $6,593 and $404, respectively. The fair value was determined using information from active markets, valuing each bond to its closing year market value, so, its valuation qualifies as Level 1.

Derivative financial instruments (Forward contracts to purchase US dollars at fixed exchange rates and interest rates swap): The fair value of Telecom's and its subsidiaries NDF contracts, disclosed in the chapter “Hedge Accounting” was determined by information obtained in the most representative financial institutions in Argentina. According to this, the derivative financial instruments’ valuation was classified as Level 2.

During the years ended December 31, 2020 and 2019, there were no transfers between Levels of the fair value hierarchy.

According to IFRS 7, it is also required to disclose fair value information about financial instruments even if they are not recognized at fair value in the balance sheet, for which it is practicable to estimate fair value. The financial instruments which are discussed in this section include, among others, cash and cash equivalents, investments at amortized cost, accounts receivable, accounts payable and other instruments.

Derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in an immediate sale of the instrument. Also, because of differences in methodologies and assumptions used to estimate fair value, the Company’s fair values should not be compared to those of other companies.

The methods and assumptions used to estimate the fair values of each class of financial instrument falling under the scope of IFRS 7 as of December 31, 2020 and 2019 are as follows:

Cash and banks

Carrying amounts approximate its fair value.

Time deposits and Other investments at amortized cost (included in Cash and cash equivalents)

Telecom and its subsidiaries consider as cash and cash equivalents all short-term and highly liquid investments that are readily convertible to known amounts of cash, subject to an insignificant risk of changes in value and their original maturity or the remaining maturity at the date of purchase does not exceed 3 months. The carrying amount reported in the statement of financial position approximates fair value.

Current and non-current Investments valued at amortized cost

As of December 31, 2020, fair value of such investments amounts to $176 and its carrying value amounts to $171. As of December 31, 2019, fair value of such investments amounted to $1,443 and its carrying value amounted to $1,452.

Trade receivables

Carrying amounts are considered to approximate fair value due to the short term nature of these trade receivables. Noncurrent trade receivables have been recognized at their amortization cost, using the effective interest method and are not significant. All amounts that are assumed to be uncollectible within a reasonable period are written off and/or reserved.

Trade payables and Leases liabilities

The carrying amount of accounts payable and leases liabilities reported in the consolidated statement of financial position approximates its fair value due to the short term nature of these accounts payable. Noncurrent trade payables and leases liabilities have been discounted.

Financial Debt

As of December 31, 2020, fair value of financial debt is as follows:


	Carrying Value	Fair Value

Notes	95,297	88,290
Other financial debts	104,903	98,403
	200,200	186,693

As of December 31, 2019, fair value of financial debt is as follows:


	Carrying Value	Fair Value

Notes	72,938	71,339
Other financial debts	133,990	132,054
	206,928	203,393

Salaries and social security payables

The carrying amount of Salaries and social security payables, reported in the consolidated statement of financial position approximates its fair value.

Other receivables, net (except for NDF) and other liabilities

The carrying amount of other receivables, net and other liabilities reported in the consolidated statement of financial position approximates its fair value.

Hedge accounting

Telecom and its subsidiaries believe that a hedging relationship qualifies for hedge accounting if all of the following conditions established by the IFRS 9 are met:

a)The hedging relationship consists only of eligible hedging instruments and hedged items;

b)At the beginning of the hedge relationship, there is a formal designation and documentation of the hedging relationship and objective and strategy for risk management of the Company and its subsidiaries for undertaking the hedge. That documentation shall include identification of the hedging instrument, the hedged item, the nature of the risk being hedged and how the entity assesses whether the hedging relationship meets the requirements of hedge effectiveness (including analysis of sources of hedge ineffectiveness and how to determine the hedge ratio); and

c)The hedging relationship satisfies the following requirements of hedge effectiveness:

(i)The economic relationship between the hedged item and the hedging instrument;

(ii)The effect of credit risk is not predominant in respect of changes of value coming from this economic relationship, and

(iii)The coverage ratio of the hedging relationship is the same as the one provided by the amount of the hedged item that really covers the entity and the amount of the hedging instrument that the entity actually uses to cover that amount of the hedged item.

During years 2019 and 2020

• LIBOR Hedges

During year ended December 31, 2017, Telecom Argentina entered into several NDF agreements to hedge the fluctuation of LIBOR from the IFC loan amounting to US$400 million and from the IIC loan amounting to US$100 million. The mentioned agreements hedge a total amount of US$440 million. Such NDF allow fixing the variable rate in a range between 2.085% and 2.4525% nominal annual rate.

As of December 31, 2018, Telecom recognized gains of $13 related to those contracts, that are included in Debt financial expenses - Interests on financial debt.

As of December 31, 2019, Telecom recognized a liability of $189, which is included in other Financial Debt ($170 current and $19 non-current). Additionally, during the year ended December 31, 2019, Telecom recognizes gains of $82 related to those contracts, that are included in Debt financial expenses – Interests on financial debt.

As of December 31, 2020, Telecom recognized a liability of $461, which is included in other Financial Debt ($450 current and $11 non-current). Additionally, during the year ended December 31, 2020, Telecom recognizes a loss of $293 related to those contracts, that are included in Debt financial expenses – Interests on financial debt.

• Exchange rate Hedges

During year ended December 31, 2018, Telecom Argentina entered into several NDF agreements to hedge the fluctuation of the exchange rate of certain commercial obligations. As of December 31, 2018, Telecom recognized a loss of $319, that are included in Other financial results, net - Other exchange differences.

Also, during year ended December 31, 2018, Telecom recognized gains for $2,338 related to NDF agreements to hedge the fluctuation of the exchange rate from its loan portfolio, that are included in Debt financial expenses – Interests on financial debt.

During year ended December 31, 2019, Telecom Argentina entered into several NDF agreements to hedge the fluctuation of the exchange rate from its loan portfolio amounting to US$499 million fixing the average exchange rate in 52.50 Argentine pesos/US$, expiring between March 2019 and April 2020. During 2019, Telecom recognized gains related to these agreements of $972 that are included in Debt financial expenses – Foreign currency exchange losses on financial debts. As of December 31, 2019, Telecom maintained NDF agreements for a total of US$46.5 million for those that has recognized a receivable of $222, which is included in current Other receivables and a liability of $321 which is included in current Financial Debt.

During year ended December 31, 2020, Telecom Argentina entered into several NDF agreements to hedge the fluctuation of the exchange rate from its loan portfolio amounting to US$477 million fixing the average exchange rate in 87.54 Argentine pesos/US$, expiring between February 2020 and February 2021. During 2020, Telecom recognized a loss related to these agreements of $1,523 that are included Debt financial expenses - Foreign currency exchange losses on financial debts. As of December 31, 2020, Telecom maintained NDF agreements for a total of US$117 million for those that has recognized a receivable of $2, which is included in current Other receivables and a liability of $66 which is included in current Financial Debt.

Offsetting of financial assets and financial liabilities in scope of IFRS 7

The information required by the amendment to IFRS 7 as of December 31, 2020 and 2019 is as follows:


	As of December 31, 2020
	Trade	Other	Trade	Other
	receivables	receivables	payables	liabilities
Current and noncurrent assets (liabilities) - Gross value	19,902	1,567	(42,693)	(565)
Offsetting	(887)	(90)	887	90
Current and noncurrent assets (liabilities) – Booked value	19,015	1,477	(41,806)	(475)


	As of December 31, 2019
	Trade	Other	Trade	Other
	receivables	receivables	payables	liabilities
Current and noncurrent assets (liabilities) - Gross value	23,426	2,209	(46,939)	(465)
Offsetting	(218)	(69)	218	69
Current and noncurrent assets (liabilities) – Booked value	23,208	2,140	(46,721)	(396)

Telecom and its subsidiaries offset the financial assets and liabilities to the extent that such offsetting is provided by offsetting agreements and provided that Telecom has the intention to make such offsetting, in accordance with requirements established in IAS 32. The main financial assets and liabilities offset correspond to transactions with other national and foreign operators including interconnection, carriers and Roaming (being offsetting a standard practice in the telecommunications industry at the international level that Telecom and its subsidiaries applies regularly). Offsetting is also applied to transactions with agents.