C25. Financial assets and liabilities by category and level

Categories

Carrying values of classes of financial assets and liabilities were distributed by category as follows. Excluded are financial instruments which are discussed in Note C27 “Leasing agreements.”

SEK in millions

Note

 

Dec 31, 2016

Dec 31, 2015

Financial assets

       

Derivatives designated as hedging instruments

C15, C18

 

2,637

2,824

Financial assets at fair value through profit and loss

   

3,084

3,172

of which derivatives not designated as hedging instruments (held-for-trading)

C15, C17C18

 

3,058

3,137

of which other held-for-trading investments

C15

 

26

35

Held-to-maturity investments

C15C18

 

9

29

Loans and receivables

C15, C17C18

 

31,920

34,138

Available-for-sale financial assets

C15C18

 

20,348

16,792

Total financial assets by category

   

57,999

56,955

Financial liabilities

       

Derivatives designated as hedging instruments

C20, C24

 

2,346

2,165

Derivatives not designated as hedging instruments

C20C24

 

1,226

329

Financial liabilities measured at amortized cost

C20, C22, C23C24

 

100,394

108,098

Financial guarantees

C22

 

287

Total financial liabilities by category

   

103,966

110,879

Fair value hierarchy levels

The carrying values of classes of financial assets and liabilities measured at fair value were distributed by fair value hierarchy level as follows.

SEK in millions

Note

December 31, 2016

December 31, 2015

Carrying

value

of which

Carrying

value

of which

Level 1

Level 2

Level 3

Level 1

Level 2

Level 3

Financial assets at fair value

                 

Equity instruments available-for-sale

C15

1,162

1,162

1,053

1,053

Equity instruments held-for-trading

C15

26

26

35

35

Long- and short-term bonds available-for-sale

C15C18

19,186

19,186

15,739

15,739

Derivatives designated as hedging instruments

C15C18

2,637

2,637

2,824

2,824

Derivatives held-for-trading  C15, C17C18

3,058

3,058

3,137

3,072

65

Total financial assets at fair value by level

 

26,069

19,186

5,696

1,188

22,789

15,739

5,896

1,153

Financial liabilities at fair value

                 

Derivatives designated as hedging instruments

C20C24

2,346

2,346

2,165

2,165

Derivatives held-for-trading

C20C24

1,226

1,226

329

329

Total financial liabilities at fair value by level

 

3,572

3,572

2,494

2,494

There were no transfers between Level 1 and 2 in 2016 and 2015.

Fair value measurement of Level 3 financial instruments

Investments classified within Level 3 make use of significant unobservable inputs in deriving fair value, as they trade infrequently. As observable prices are not available for these equity instruments, Telia Company has a market approach to derive the fair value.

Telia Company’s primary valuation technique used for estimating the fair value of unlisted equity instruments in Level 3 is based on the most recent transaction for the specific company if such transaction has been recently done. If there has been significant changes in circumstances between the transaction date and the balance sheet date that, in the assessment of Telia Company, would be a material impact on the fair value, the carrying value is adjusted to reflect the changes.

In addition, the assessment of the fair value of material unlisted equity instruments is verified by applying other valuation models in the form of valuation multiples from listed comparable companies (peers) on relevant financial and operational metrics, such as revenue, gross profit and other relevant KPIs for the specific company. Comparable listed companies are determined based on industry, size, development stage, geographic area and strategy. The multiple is calculated by dividing the enterprise value of the comparable company by the relevant metric. The multiple is then adjusted for discounts/premiums with regards to differences, advantages and disadvantages between Telia Company’s investment and the comparable public companies based on company specific facts and circumstances.

Although Telia Company uses its best judgment, and cross-references results of the primary valuation model against other models in estimating the fair value of unlisted equity instruments, there are inherent limitations in any estimation technique. The fair value estimates presented herein are not necessarily indicative of an amount that Telia Company could realize in a current transaction. Future confirming events will also affect the estimates of fair value. The effect of such events on the estimates of fair value could be material.

Unlisted equity instruments for which the fair value cannot be reliably measured are measured at cost less any impairment.

The table below presents the movement in Level 3 instruments for the twelve-month period ended December 31, 2016.

SEK in millions

December 31, 2016

December 31, 2015

Equity in-struments available-for-sale

Equity in-struments held-for-trading

Long- and short-term bonds available for sale

Deriva­tives held-for-trading

Total

Equity in-struments available-for-sale

Equity in-struments held-for-trading

Long- and short-term bonds available for sale

Deriva­tives held-for-trading

Total

Level 3, opening balance

1,053

35

65

1,153

275

61

0

55

391

Changes in fair value

-4

-4

10

-26

0

10

-6

of which recognized in
net income

-15

-26

0

10

-31

of which recognized in
other comprehensive income

-4

-4

25

25

Purchases/capital contributions

48

48

994

4

998

Exercise of warrants

65

-65

Transfers out of level 3

Disposals

-10

-10

Exchange rate differences

16

-5

0

0

11

Reclassified to assets classified as held for sale

-242

-1

-243

Level 3, closing balance

1,162

26

1,188

1,053

35

65

1,153

The purchases in 2015 mainly related to the acquisition of a 1.4 percent stake in Spotify for USD 115 million, corresponding to SEK 976 million at the transaction date on June 9, 2015. Changes in fair value recognized in net income are included in line item Other financial items, see specification in Note C9 “Finance costs and other financial items.” Former segment region Eurasia is classified as held for sale and discontinued operations since December 31, 2015. For further information, see Note C34 “Discontinued operations and assets classified as held for sale.”