Note 19

Financial instruments, price and valuation hierarchy

 

 20161231 20161231  20161231  20161231 
Fair value, SEK m Level 1             Level 2 Level 3         Total
Financial assets        
Shares and participations, listed  157 538  37 819  2 518  197 875
Shares and participations, unlisted -  -  26 254  26 254
Bonds and other fixed income securities  105 921  385  845  107 151
Derivatives  0  2 620  -  2 620
Total financial assets  263 459  40 824  29 618  333 901
Financial liabilities        
Derivatives  0  -3 919  -  -3 919
Total financial liabilities  0  -3 919  -  -3 919
Net financial assets and liabilities  263 459  36 906  29 618  329 982

 

 20151231 20151231  20151231  20151231 
Financial assets Level 1                  Level 2        Level 3  Total
Financial assets        
Shares and participation, listed 139 682 35 308 2 377 177 367
Shares and participations, unlisted - - 19 822 19 822
Bonds and other fixed income securities 102 512 144 3 892 105 548
Derivatives 0 3 296 0 3 296
Total financial assets 242 195 38 749 26 090 307 034
Financial liabilities        
Derivatives 0 -1 888 0 -1 888
Total financial liabilities 0 -1 188 0 -1 888
Net financial assets and liabilities 242 195 36 861 26 090 305 146

Level 1. Instruments with publicly quoted prices

Financial instruments traded in an active market. A market is deemed active if quoted prices are regularly updated more frequently than once a week and if the prices used are unaltered to settle trades in the market. More than 80% of AP4's investment assets within the asset classes’ equities, bonds and derivatives can be found here.

Level 2. Valuation methods based on observable market data


Financial instruments traded in a market that is not deemed active, but where there are quoted prices that are used uncorrected for trades, or observable input data for indirect valuation, which is updated regularly. This category at AP4 mainly includes publicly quoted equity funds with few trades, but with observable input data for indirect valuation, as well as OTC derivatives such as forward exchange contracts and interest rate swaps, as well as fixed income instruments and funds containing interest rate instruments with low liquidity.

OTC derivatives are valued using discount curves indirectly based on observablecash input data that are interpolated or extrapolated to calculate non-observable interest rates. Input data for these interest rates used to discount the future cash flows of the instrument for valuation are liquid and observable, though this does not apply for interest rates.These instruments are therefore classified as level 2.

Level 3. Valuation methods based on non-observable market data


Financial instruments that cannot be classified as level 1 or level 2. Unlisted shares and shareholder loans in directly held real estate companies and unlisted shares in venture capital firms are mainly found here. IPEV’s principles are mainly used as a framework for venture capital firms, which comprises several valuation methods such as valuation based on actual transactions, multiples valuation, net asset valuation and discounted cash flow.

The principles of IPD Swedish Property Index are used as a framework for holdings in directly owned property where two fundamental methods are prevailing. These are the local market price method and the indirect return method (NPV approach). Local market price method means that the property holdings are compared with similar properties sold on the open market while the indirect return method involves discounted forecasted future cash flows.

Sensitivity analysis

According to IFRS a sensitivity analysis shall be presented using an alternative valuation for Level 3 assets. In terms of valuation methodology, an alternative valuation of these assets is associated with tremendous difficulties. Generally speaking, for unlisted real estate the yield requirement is crucial, but assumptions about factors such as vacancies, operating costs, marketing and profit growth are also of great importance. For venture capital firms, profit growth and the stock exchange valuation multiples are important. Level 3 valuations usually include a delay that in a positive trending market entail a cautious valuation.

Sensitivity analyses of Vasakronan, AP4's largest real estate holding, with a fair market value of shares and participations of  SEK 13.8 billion is about 50 percent of unlisted shares of Level 3. According to the analysis a change in direct return requirement of +/- 0.25 percentage points changes the value of the holding in Vasakronan by approximately SEK -1.5/+1.7 billion.

Significant assumptions are made about valuation multiples and future cash flows for the valuation of AP4's investments in venture capital firms reported in unlisted shares corresponding to SEK 2.6 billion. Should the assumption of the multiple of EV / EBITDA change by +/- 5 percent the valuation of these investments will change by - / + SEK 330 million.

The valuation of AP4’s high-yield fixed-income assets reported in listed shares is based substantially on the discount rates of interest and repayment of loans. A change in the discount rate of +/- 1 percentage point for all maturities would entail a change in value of - / + SEK 76 million.

Change in level 3

  Shares and participations, unlisted Shares and participations, listed Bonds and other fixed income securities
Opening balance, January 1, 2016  19 822  2 377  3 892
Realized and unrealized (+) or losses (-) in the income statement*  3 025  -163  -137
Purchase  4 189  777  205
Sale  -782  -472  -3 115
Closing balance, December 31, 2016  26 254  2 518  845
* of which unrealized gains  2 448  -255  -137

 

  Shares and participations, unlisted Shares and participations, listed Bonds and other fixed income securities
Opening balance, January 1, 2015 14 696 1 278 5 495
Realized and unrealized (+) or losses (-) in the income statement* 3 227 429 -16
Purchase 3 215 995 222
Sale -1 315 -325 -1 810
Closing balance, December 31, 2015 19 822 2 377 3 892
* of which unrealized gains 3 133 256 -16