8.6 Liabilities due to guarantees granted
in PLN millions, unless otherwise stated
Guarantees and letters of credit are an essential financial liquidity management tool of the Group.
The Group issued guarantees which meet the definition of contingent liabilities pursuant to IAS 37 and recognises them in contingent liabilities and guarantees, which meet the definition of financial guarantees under IFRS 9, and which are measured and recognised as financial instruments pursuant to this standard.
The financial guarantee agreement is an agreement obliging its issuer to make certain payments compensating the holder of the guarantee for the loss they will incur due to a debtor’s failure to pay on the due date, pursuant to the initial or amended terms of a debt instrument. At the moment of initial recognition, the Group recognises the financial guarantee at its fair value, in the following items of the statement of financial position:
- financial assets measured at amortised cost (other financial assets),
- other liabilities (deferred income).
The liability due to the financial guarantee granted as at the end of the reporting period is recognised at the higher of two amounts: the initial value of the issued guarantee less the amount of profits recognised in profit or loss on guarantees, or the amount of an allowance for expected credit losses – set pursuant to the principles of the general model, described in accounting policies in Note 7.5.2.
For the calculation of expected credit losses – ECL – the Group adopts estimates for the rating, PD (probability of and LGD (loss given default) parameters. Calculation of the expected credit losses takes place in the horizon remaining to the end of the guarantee, while the rating of a guarantee’s beneficiary is adopted as the rating of the entity used for the purposes of calculating the PD parameter.
As at 31 December 2022, the liabilities of the Group due to guarantees and letters of credit granted amounted to a total of PLN 1 156 million (as at 31 December 2021, PLN 849 million) and due to promissory note payables amounted to PLN 170 million (as at 31 December 2021, PLN 173 million).
The most significant items are liabilities of the Parent Entity aimed at securing the following obligations:
- Sierra Gorda S.C.M. – a corporate guarantee in the amount of PLN 969 million (USD 220 million) set as security on the repayment of a bank loan drawn by Sierra Gorda S.C.M. (as at 31 December 2021 in the amount of PLN 670 million, or USD 165 million). The guarantee’s validity period falls on September 2024. The carrying amount of the liability due to a financial guarantee granted was recognised in the amount of PLN 57 million (as at 31 December 2021, PLN 58 million)*,
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other entities, including the Parent Entity:
- PLN 126 million – securing the proper execution by the Parent Entity of future environmental obligations related to the obligation to restore terrain, following the conclusion of operations of the Żelazny Most tailings storage facility (as at 31 December 2021 in the amount of PLN 124 million), the guarantee is valid for up to 1 year,
- PLN 14 million – securing claims on behalf of Marshal of the Voivodeship of Lower Silesia to cover costs related to collecting and processing waste, the guarantee is valid up to 1 year,
- PLN 37 million (PLN 30 million and CAD 2 million) securing the obligations related to proper execution of agreements concluded by the Group (as at 31 December 2021 in the amount of PLN 39 million, or PLN 32 million and CAD 2 million), the guarantee is valid for up to 3 years,
- PLN 2 million – securing obligations related to tax and customs duties, the guarantee is valid indefinitely.
Based on the knowledge held, at the end of the reporting period the Group assessed the probability of payments resulting from liabilities due to guarantees and letters of credit granted as low.
*The financial guarantee was recognised pursuant to par. 4.2.1. point c of IFRS 9.