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Notes to the consolidated financial statements

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25. Investments in financial assets

As at 31 December 2016, “Shares” included mostly the fair value of preference C series shares convertible to ordinary A series shares in Visa Inc. in the amount of PLN 3,935 thousand.

On 21 June 2016, the transaction involving acquisition of Visa Europe Limited (“Visa Europe”) by Visa Inc. was closed.  Following its settlement including amendments to original transaction terms, the Bank has received the following consideration for its share in Visa Europe:

• EUR 2,787 thousand in cash;
• 1,011 preference C series shares convertible to ordinary A series shares in Visa Inc.;
• a share in deferred payment of 0.0214748639% of the amount earmarked for this purpose (EUR 1.12 billion) subject to a provision that the amount may be adjusted.  The deferred payment will be receivable three years of the transaction closing. Therefore, when recognizing this portion of the consideration, the Bank has applied a 2% discount to be brought forward until the date of receiving the related funds. 

The total consideration arising from the closing of the transaction of acquiring Visa Europe by Visa Inc., recognized in consolidated income statement under “Gain or loss on other financial instruments” amounted to PLN 16,872 thousand and included:

• PLN 12,244 thousand in cash;
• PLN 3,592 thousand preference C series shares convertible to ordinary A series shares in Visa Inc.;
• PLN 1,036 thousand of deferred cash payment. 

The fair value of received preference C series shares convertible to ordinary A series shares in Visa Inc. includes a discount resulting from limited transferability of the shares and the risk of a conversion rate adjustment.  As at 31 December 2016, the conversion rate did not change vs. the transaction closing date (i.e. 21 June 2016) and one preference C series share is convertible to 13.952 ordinary A series shares in Visa Inc.  The Bank classified the shares in Visa Inc. as financial assets available for sale. 

As at 31 December 2016, preferred C series shares convertible to ordinary A series shares in Visa Inc. were measured at fair value based on the NYSE quoting of ordinary A series shares in Visa Inc. as at that date, including the conversion ratio and 15% discount related to the limited transferability of the C series shares and the risk of conversion rate adjustment.  

“Shares” item included the fair value of shares in Visa Europe Limited (”Visa Europe”). In December 2015 Visa Europe informed the Bank that the potential impact of settling the acquisition of Visa Europe by Visa Inc. allocated to the Bank will reach EUR 3,511 thousand, including EUR 2,614 thousand of cash and EUR 897 thousand of preference shares convertible to shares in Visa Inc. The amounts in question may be adjusted by transaction costs and other adjustments resulting from possible appeals filed by members of Visa Europe regarding adjustments of amounts awarded due to transaction settlement. Moreover, deferred earn-out payments to Visa Europe members after 16 quarters of the transaction close have been accounted for in the deal. Earnout was awarded to members meeting qualification criteria for payments in cash and shares who will not have discontinued their membership in Visa for 4 years of the transaction date. As at 31 December 2015 the deferred earn-out amount allocated to the Bank was not determined.

Based on the information the Bank remeasured shares in Visa Europe to their fair value, with the fair value assumed in the amount of cash allocated to the Bank as a result of the transaction settlement and the value of shares awarded including a 6% discount, i.e. EUR 3,457 thousand (PLN 14,733 thousand). The measurement was recognized in “Revaluation reserve”. As the deferred earn-out allocated to the Bank was not determined as at 31 December 2015, the Bank did not account for this amount in the measurement of shares in Visa Europe.

 

Investment assets available for sale – by maturity

Investment financial assets held to maturity – by maturity

Reclassification of securities

In 2010 and in 2014, following the intended use change, the Group reclassified securities from available for sale to held to maturity, in accordance with classification criteria described in IAS 39.

The par value, the carrying amount and the fair value of reclassified securities as at 31 December 2016 and 31 December 2015 have been presented in detail in the table below.

Figures which would have been recognized in profit or loss and other comprehensive income if the reclassification had not been carried out

Figures recognized in profit or loss and other comprehensive income following the reclassification