We have various financial assets such as trade and non-trade receivables, cash and short-term deposits. Our principal financial liabilities, other than derivatives, comprise of bank loans, lease liabilities, trade and non-trade payables. The main purpose of these financial liabilities is to finance our operations. We also enter into derivative transactions, primarily principal only-currency swap agreements, interest rate swaps and forward foreign exchange contracts and options to manage the currency and interest rate risks arising from our operations and sources of financing. Our accounting policies in relation to derivatives are set out in Note 2 – Summary of Significant Accounting Policies – Financial Instruments.

The following table sets forth our consolidated financial assets and financial liabilities as at December 31, 2020 and 2019:

	Cash and cash equivalents		Financial instruments at amortized cost				Financial instruments at FVPL				Financial instruments at FVOCI		Total financial instruments
	(in million pesos)
Assets as at December 31, 2020
Noncurrent:
Financial assets at fair value through profit or loss		—		—				380				—		380
Debt instruments at amortized cost – net of current portion		—		1,153				—				—		1,153
Other financial assets – net of current portion		—		2,915		⁽¹⁾		—				—		2,915
Current:
Cash and cash equivalents		40,237		—				—				—		40,237
Short-term investments		—		508				481		⁽²⁾		—		989
Trade and other receivables		—		22,053				—				—		22,053
Current portion of derivative financial assets		—		—				22				—		22
Current portion of financial assets at fair value through other comprehensive income		—		—				—				168		168
Current portion of other financial assets		—		200		⁽¹⁾		6,972		⁽³⁾		—		7,172
Total assets		40,237		26,829				7,855				168		75,089

Liabilities as at December 31, 2020
Noncurrent:
Interest-bearing financial liabilities – net of current portion		—		205,195				—				—		205,195
Lease liabilities – net of current portion		—		15,982				—				—		15,982
Derivative financial liabilities – net of current portion		—		—				360				—		360
Customers' deposits		—		2,371				—				—		2,371
Deferred credits and other noncurrent liabilities		—		1,683				—				—		1,683
Current:
Accounts payable		—		80,051				—				—		80,051
Accrued expenses and other current liabilities		—		79,000				7,849				—		86,849
Current portion of interest-bearing financial liabilities		—		17,570				—				—		17,570
Current portion of lease liabilities		—		4,043				—				—		4,043
Dividends payable		—		1,194				—				—		1,194
Current portion of derivative financial liabilities		—		—				176				—		176
Total liabilities		—		407,089				8,385				—		415,474
Net assets (liabilities)		40,237		(380,260	)			(530	)			168		(340,385	)

⁽¹⁾

Includes refundable deposits and notes receivables.

⁽²⁾

In December 2020, PLDT invested US$10.0 million in the Supply Chain Finance of Cedit Suisse equivalent to 9,114.59 shares.
The fund is invested in Notes backed by buyer-confirmed trade receivables/buyer payment undertakings, supplier payment undertakings and account receivables. Underlying credit risk of the Notes is insured by an insurance company with ratings of at least A by S&P and A2 by Moodys. As at December 31, 2020, the fund’s value is US$10.01 million.

⁽³⁾

Includes RCBC Redemption Trust Account. See Note 20 – Equity – Redemption of Preferred Stock.

	Cash and cash equivalents		Financial instruments at amortized cost			Financial instruments at FVPL		Financial instruments at FVOCI		Total financial instruments
	(in million pesos)
Assets as at December 31, 2019
Noncurrent:
Financial assets at fair value through profit or loss		—		—			3,369		—		3,369
Derivative financial assets – net of current portion		—		—			1		—		1
Financial assets at fair value through other comprehensive income – net of current portion		—		—			—		162		162
Other financial assets – net of current portion		—		1,986			—		—		1,986
Current:
Cash and cash equivalents		24,369		—			—		—		24,369
Short-term investments		—		314			—		—		314
Trade and other receivables		—		22,436			—		—		22,436
Current portion of derivative financial assets		—		—			41		—		41
Current portion of debt instruments at amortized cost		—		150			—		—		150
Current portion of financial assets at fair value through other comprehensive income		—		—			—		2,757		2,757
Current portion of other financial assets		—		1,220			6,866		—		8,086
Total assets		24,369		26,106			10,277		2,919		63,671

Liabilities as at December 31, 2019
Noncurrent:
Interest-bearing financial liabilities – net of current portion		—		172,834			—		—		172,834
Lease liabilities – net of current portion		—		13,100			—		—		13,100
Derivative financial liabilities – net of current portion		—		—			25		—		25
Customers' deposits		—		2,205			—		—		2,205
Deferred credits and other noncurrent liabilities		—		2,179			—		—		2,179
Current:
Accounts payable		—		76,384			—		—		76,384
Accrued expenses and other current liabilities		—		73,303			7,851		—		81,154
Current portion of interest-bearing financial liabilities		—		19,722			—		—		19,722
Current portion of lease liabilities		—		3,215			—		—		3,215
Dividends payable		—		1,584			—		—		1,584
Current portion of derivative financial liabilities		—		—			88		—		88
Total liabilities		—		364,526			7,964		—		372,490
Net assets (liabilities)		24,369		(338,420	)		2,313		2,919		(308,819	)

The following table sets forth our consolidated offsetting of financial assets and liabilities recognized as at December 31, 2020 and 2019:

There are no financial instruments subject to an enforceable master netting arrangement as at December 31, 2020 and 2019.

The following table sets forth our consolidated carrying values and estimated fair values of our financial assets and liabilities recognized as at December 31, 2020 and 2019 other than those whose carrying amounts are reasonable approximations of fair values:

Below is the list of our consolidated financial assets and liabilities carried at fair value that are classified using a fair value hierarchy as required for our complete sets of consolidated financial statements as at December 31, 2020 and 2019. This classification provides a reasonable basis to illustrate the nature and extent of risks associated with those financial statements.

As at December 31, 2020 and 2019, there were no transfers into and out of Level 3 fair value measurements.

As at December 31, 2020 and 2019, there were no transfers between Level 1 and Level 2 fair value measurements.

The following methods and assumptions were used to estimate the fair value of each class of financial instrument for which it is practicable to estimate such value:

Forward foreign exchange contracts, foreign currency swaps and interest rate swaps: The fair values were computed as the present value of estimated future cash flows using market U.S. Dollar and Philippine Peso interest rates as at valuation date.

The valuation techniques considered various inputs including the credit quality of counterparties.

Due to the short-term nature of the transactions, the fair value of cash and cash equivalents, short-term investments, trade and other receivables, accounts payable, accrued expenses and other current liabilities and dividends payable approximate their carrying values as at the end of the reporting period.

Our derivative financial instruments are accounted for as either cash flow hedges or transactions not designated as hedges. Cash flow hedges refer to those transactions that hedge our exposure to variability in cash flows attributable to a particular risk associated with a recognized financial asset or liability and exposures arising from forecast transactions. Changes in the fair value of these instruments representing effective hedges are recognized directly in other comprehensive income until the hedged item is recognized in our consolidated income statement. For transactions that are not designated as hedges, any gains or losses arising from the changes in fair value are recognized directly to income for the period.

As at December 31, 2020 and 2019, we have taken into account the counterparties’ credit risks (for derivative assets) and our own non-performance risk (for derivative liabilities) and have included a credit or debit valuation adjustment, as appropriate, by assessing the maximum credit exposure and taking into account market-based inputs which considers the risk of default occurring and corresponding losses once the default event occurs. The changes in counterparty credit risk had no material effect on the hedge effectiveness assessment for derivatives designated in hedge relationships and other financial instruments recognized at fair value.

The table below sets out the information about our consolidated derivative financial instruments as at December 31, 2020 and 2019:

										2020					2019
	Original Notional Amount	Trade Date	Underlying Transaction in U.S. Dollar	Termination Date	Weighted Average Hedge Cost			Weighted Average Foreign Exchange Rate		Notional Amount		Net Mark- to- market Losses in Php			Notional Amount		Net Mark- to- market Gains (Losses) in Php
	(in millions)		(in millions)							(in millions)
Transactions not designated as hedges:
PLDT
Forward foreign exchange contracts	US$16	Various dates in October 2020 to January 2021	U.S. Dollar Liabilities	Various dates in January to April 2021		—		Php48.40		US$13			(5	)	US$22			(12	)
	US$45	January to February 2021	U.S. Dollar Liabilities	Various dates in March to June 2021		—		Php48.26			—		—			—		—
	EUR5	Various dates in July and August 2019	EUR Assets	January 2020		—		Php58.65			—		—		EUR5			8
Smart
Forward foreign exchange contracts	US$144	Various dates in 2018 and 2019	U.S. Dollar Liabilities	Various dates in 2019		—		Php52.73			—		—			—		—
	US$260	Various dates in 2019 and 2020	U.S. Dollar Liabilities	Various dates in 2020		—		Php50.77			—		—		US$41			(22	)
	US$26	Various dates in 2020	U.S. Dollar Liabilities	Various dates in 2021		—		Php48.44		US$26			(9	)		—		—
	US$69	January to March 2021	U.S. Dollar Liabilities	February to June 2021		—		Php48.42			—		—			—		—
PCEV
Forward foreign exchange contracts	US$22	Various dates in 2019	U.S. Dollar Cash Conversion	Various dates in 2019		—		Php52.24			—		—			—		—
													(14	)				(26	)
Transactions designated as hedges:
PLDT
Interest rate swaps^(a)	US$100	August 2014	100 PNB	August 11, 2020		3.46	%		—		—		—		US$95			(6	)
	US$50	September 2014	50 Metrobank	September 2, 2020		3.47	%		—		—		—		US$48			(5	)
	US$150	April and June 2015	200 Term Loan	February 25, 2022		2.70	%		—	US$34			(25	)	US$56			2
Long-term currency swaps^(b)	US$4	January 2017	100 PNB	August 11, 2020		1.01	%	Php49.79			—		—		US$1			1
	US$6	April and June 2017	200 MUFG Bank, Ltd.	August 26,2019		1.63	%	Php49.51			—		—			—		—
	US$2	January 2018	200 MUFG Bank, Ltd.	August 26,2019		1.59	%	Php49.86			—		—			—		—
	US$6	February 2018	200 MUFG Bank, Ltd.	February 26, 2020		1.82	%	Php51.27			—		—		US$1			(2	)
	US$27	November 2018 to August 2020	200 MUFG Bank, Ltd.	February 25, 2022		2.15	%	Php50.78		US$16			(52	)	US$17			(30	)
Long-term foreign currency options^(c)	US$200	Various dates in July 2020 and February 2021	300M Notes 2031	January 23, 2031		1.26	%	Php50.00 Php56.00		US$200			(406	)		—		—
	US$80	February to March 2021	300M Notes 2031	January 23, 2031		1.07	%	Php48.75 Php53.69			—		—			—		—
													(483	)				(40	)
Smart
Interest rate swaps^(d)	US$85	Various dates in 2014 and 2015	100 Bank of Tokyo	March 7, 2019		2.23	%		—		—		—			—		—
	US$50	October 2, 2014	50 Mizuho	May 14, 2019		2.58	%		—		—		—			—		—
	US$200	Various dates in 2015	200 Mizuho	March 4, 2020		2.10	%		—		—		—		US$22			4
	US$30	February 2016	100 Mizuho	December 7, 2021		2.03	%		—	US$6			(2	)	US$12			5
Long-term currency swaps^(e)	US$18	Various dates in 2017, 2018 and 2019	100 Mizuho	December 7, 2020		1.76	%	Php50.98			—		—		US$9			(3	)
	US$13	Various dates in 2018 and 2019	200 Mizuho	March 4, 2020		2.06	%	Php51.93			—		—		US$4			(6	)
	US$6	February 2019	100 Mizuho	December 7, 2021		2.22	%	Php51.83		US$2			(8	)	US$4			(5	)
	US$6	August 2020	100 Mizuho	December 7, 2022		1.99	%	Php48.64		US$6			(7	)		—		—
Long-term foreign currency options^(f)	US$80	February to March 2021	140 PNB	December 13, 2030		1.64	%	Php48.00 Php53.48			—		—			—		—
													(17	)				(5	)
													(514	)				(71	)

(a)

PLDT’s interest rate swap agreements outstanding as at December 31, 2020 and 2019 were designated as cash flow hedges, wherein the effective portion of the movements in fair value is recognized in our consolidated statements of other comprehensive income, while any ineffective portion is recognized immediately in our consolidated income statements. The mark-to-market losses amounting to Php16 million and Php11 million were recognized in our consolidated statements of other comprehensive income as at December 31, 2020 and 2019, respectively. Interest accrual on the interest rate swaps amounting to Php9 million and Php2 million were recorded as at December 31, 2020 and 2019, respectively. There were no ineffective portion in the fair value recognized in our consolidated income statements for the years ended December 31, 2020 and 2019.

(b)

PLDT’s long-term principal only-currency swap agreements outstanding as at December 31, 2020 and 2019 were designated as cash flow hedges, wherein effective portion of the movements in the fair value is recognized in our consolidated statements of other comprehensive income, while any ineffective portion is recognized immediately in our consolidated income statements. The mark-to-market losses amounting to Php46 million and Php23 million were recognized in our consolidated statements of other comprehensive income as at December 31, 2020 and 2019, respectively. Hedge cost accrual on the long-term principal only-currency swaps amounting to Php6 million and Php7 million were recognized as at December 31, 2020 and 2019, respectively. The amounts recognized as other comprehensive income are transferred to profit or loss when the hedged loan is revalued for changes in the foreign exchange rate. The hedge cost portion of the movements in the fair value amounting to Php2 million were recognized in our consolidated income statements for each of the years ended December 31, 2020 and 2019.

(c)

PLDT’s long-term foreign currency option agreements outstanding as at December 31, 2020 were designated as cash flow hedges, wherein the effective portion of the movements in fair value is recognized in our consolidated statements of other comprehensive income, while any ineffective portion is recognized immediately in our consolidated income statements. Settlement of the foreign currency option agreements will depend on the spot exchange rate on the fixing date. If the Philippine peso to U.S. dollar spot exchange rate on fixing date is between Php50.00 and Php56.00, PLDT will purchase the U.S. dollar at Php50.00. However, if on fixing date, the exchange rate is beyond Php56.00, PLDT will purchase the U.S. dollar at the prevailing Philippine peso to U.S. dollar spot exchange rate minus a subsidy of Php6.00, and if the exchange rate is lower than Php50.00, PLDT will purchase the U.S. dollar at the prevailing Philippine peso to U.S. dollar spot exchange rate. The mark-to-market losses amounting to Php342 million were recognized in our consolidated statement of other comprehensive income as at December 31, 2020. Hedge cost accrual on the long-term foreign currency option agreements amounting to Php64 million were recognized as at December 31, 2020. The intrinsic value of the long-term foreign currency options recognized as other comprehensive income are transferred to profit or loss when the hedged loan is revalued for changes in the foreign exchange rate. The hedge cost portion of the movements in the fair value amounting to Php26 million were recognized in our consolidated income statement for the year ended December 31, 2020.

(d)

Smart’s interest rate swap agreements outstanding as at December 31, 2020 and, 2019 were designated as cash flow hedges, wherein the effective portion of the movements in fair value is recognized in our consolidated statements of other comprehensive income, while any ineffective portion is recognized immediately in our consolidated income statements. The mark-to-market loss amounting to Php2 million and mark-to-market gain amounting to Php6 million were recognized in our consolidated statements of other comprehensive income as at December 31, 2020 and 2019, respectively. Interest accrual amounting to Php197 thousand and interest reduction amounting to Php3 million were recognized as at December 31, 2020 and 2019, respectively. There were no ineffective portion in the fair value recognized in our consolidated income statements for the years ended December 31, 2020 and 2019.

(e)

Smart’s long-term principal only-currency swap agreements outstanding as at December 31, 2020 and 2019 were designated as cash flow hedges, wherein the effective portion of the movements in fair value is recognized in our consolidated statements of other comprehensive income, while any ineffective portion is recognized immediately in our consolidated income statements. The mark-to-market losses amounting to Php13 million and Php12 million were recognized in our consolidated statements of other comprehensive income as at December 31, 2020 and 2019, respectively. Hedge cost accrual on the long-term principal only-currency swaps amounting to Php2 million each was recognized as at December 31, 2020 and 2019. The amounts recognized as other comprehensive income are transferred to profit or loss when the hedged loan is revalued for changes in the foreign exchange rate. The hedge cost portions of the movements in the fair value amounting to Php1 million each was recognized in our consolidated income statements for the years ended December 31, 2020 and 2019.

(f)

Smart’s long-term foreign currency option agreements entered on various dates in February 2021 were designated as cash flow hedges, wherein the effective portion of the movements in fair value is recognized in our consolidated statements of other comprehensive income, while any ineffective portion is recognized immediately in our consolidated income statements. Settlement of the foreign currency option agreements will depend on the spot exchange rate on the fixing date. If the Philippine Peso to U.S. Dollar spot exchange rate on fixing date is between Php48.00 and Php54.00, Smart will purchase the U.S. Dollar at Php48.00. However, if on fixing date the exchange rate is beyond Php54.00, Smart will purchase the U.S. Dollar at the prevailing Philippine Peso to U.S. Dollar spot exchange rate minus a subsidy of Php6.00, and if the exchange rate is lower than Php48.00, Smart will purchase the U.S. Dollar at the prevailing Philippine Peso to U.S. Dollar spot exchange rate.

Our derivative financial instruments as at December 31, 2020 and 2019 are presented in the statements of financial position as follows:

Movements of our consolidated mark-to-market gains (losses) for the years ended December 31, 2020 and 2019 are summarized as follows:

Our consolidated analysis of gains (losses) on derivative financial instruments for the years ended December 31, 2020, 2019 and 2018 are as follows:

The main risks arising from our financial instruments are liquidity risk, foreign currency exchange risk, interest rate risk and credit risk. The importance of managing those risks has significantly increased in light of the considerable change and volatility in both the Philippine and international financial markets. Our Board of Directors reviews and approves policies for managing each of these risks, which are summarized below. We also monitor the market price risk arising from all financial instruments.

Our exposure to liquidity risk refers to the risk that our financial requirements, working capital requirements and planned capital expenditures will not be met.

We manage our liquidity profile to be able to finance our operations and capital expenditures, service our maturing debts and meet our other financial obligations. To cover our financing requirements, we use internally generated funds and proceeds from debt and equity issues and sales of certain assets.

As part of our liquidity risk management program, we regularly evaluate our projected and actual cash flows, including our loan maturity profiles, and continuously assess conditions in the financial markets for opportunities to pursue fund-raising initiatives. These activities may include bank loans, export credit agency-guaranteed facilities, debt capital and equity market issues.

Any excess funds are primarily invested in short-term and principal-protected bank products that provide flexibility of withdrawing the funds anytime. We also allocate a portion of our cash in longer tenor investments such as fixed income securities issued or guaranteed by the Republic of the Philippines, and Philippine banks and corporates and managed funds. We regularly evaluate available financial products and monitor market conditions for opportunities to enhance yields at acceptable risk levels. Our investments are also subject to certain restrictions contained in our debt covenants. Our funding arrangements are designed to keep an appropriate balance between equity and debt and to provide financing flexibility while enhancing our businesses.

Our cash position remains sufficient to support our planned capital expenditure requirements and service our debt and financing obligations; however, we may be required to finance a portion of our future capital expenditures from external financing sources. We have cash and cash equivalents, and short-term investments amounting to Php40,237 million and Php989 million, respectively, as at December 31, 2020, which we can use to meet our short-term liquidity needs. See Note 16 – Cash and Cash Equivalents.

The following table summarizes the maturity profile of our financial assets based on our consolidated undiscounted claims outstanding as at December 31, 2020 and 2019:

	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
	(in million pesos)
December 31, 2020
Cash and cash equivalents		30,711		30,711		—		—		—
Temporary cash investments		30,711		30,711		—		—		—
Financial instruments at amortized cost:		43,654		40,165		2,286		732		471
Other financial assets		3,689		200		2,286		732		471
Debt instruments at amortized cost		1,153		1,153		—		—		—
Short-term investments		508		508		—		—		—
Retail subscribers		17,142		17,142		—		—		—
Corporate subscribers		13,318		13,318		—		—		—
Foreign administrations		1,520		1,520		—		—		—
Domestic carriers		226		226		—		—		—
Dealers, agents and others		6,098		6,098		—		—		—
Financial instruments at FVPL:		7,833		7,453		—		—		380
Financial assets at fair value through profit or loss		380		—		—		—		380
Short-term investments		481		481		—		—		—
Other financial assets		6,972		6,972		—		—		—
Financial instruments at FVOCI:		168		168		—		—		—
Financial assets at fair value through other comprehensive income		168		168		—		—		—
Total		82,366		78,497		2,286		732		851

December 31, 2019
Cash and cash equivalents		17,663		17,663		—		—		—
Temporary cash investments		17,663		17,663		—		—		—
Financial instruments at amortized cost:		43,308		41,024		1,768		338		178
Other financial assets		3,504		1,220		1,768		338		178
Debt instruments at amortized cost		150		150		—		—		—
Short-term investments		314		314		—		—		—
Retail subscribers		17,178		17,178		—		—		—
Corporate subscribers		13,005		13,005		—		—		—
Foreign administrations		1,896		1,896		—		—		—
Domestic carriers		889		889		—		—		—
Dealers, agents and others		6,372		6,372		—		—		—
Financial instruments at FVPL:		10,235		6,866		—		—		3,369
Financial assets at fair value through profit or loss		3,369		—		—		—		3,369
Other financial assets		6,866		6,866		—		—		—
Financial instruments at FVOCI:		2,919		2,757		162		—		—
Financial assets at fair value through other comprehensive income		2,919		2,757		162		—		—
Total		74,125		68,310		1,930		338		3,547

The following table summarizes the maturity profile of our financial liabilities based on our consolidated contractual undiscounted obligations outstanding as at December 31, 2020 and 2019:

	Payments Due by Period
	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
	(in million pesos)
December 31, 2020
Debt^(1):		292,639		12,562		74,960		51,659		153,458
Principal		224,027		12,400		47,753		37,785		126,089
Interest		68,612		162		27,207		13,874		27,369
Lease obligations		29,312		10,995		8,897		5,068		4,352
Various trade and other obligations:		169,808		165,750		2,010		36		2,012
Suppliers and contractors		76,864		75,322		1,535		7		—
Utilities and related expenses		64,580		64,577		3		—		—
Employee benefits		10,404		10,404		—		—		—
Liability from redemption of preferred shares		7,849		7,849		—		—		—
Customers’ deposits		2,371		—		330		29		2,012
Carriers and other customers		1,336		1,336		—		—		—
Dividends		1,194		1,194		—		—		—
Others		5,210		5,068		142		—		—
Total contractual obligations		491,759		189,307		85,867		56,763		159,822

December 31, 2019
Debt^(1):		243,226		19,014		66,052		54,146		104,014
Principal		193,047		15,221		44,253		40,288		93,285
Interest		50,179		3,793		21,799		13,858		10,729
Lease obligations		25,465		10,458		6,879		4,401		3,727
Various trade and other obligations:		153,255		148,839		2,405		38		1,973
Suppliers and contractors		70,169		68,051		2,118		—		—
Utilities and related expenses		51,875		51,843		32		—		—
Employee benefits		8,673		8,673		—		—		—
Liability from redemption of preferred shares		7,851		7,851		—		—		—
Customers’ deposits		2,205		—		194		38		1,973
Dividends		1,584		1,584		—		—		—
Carriers and other customers		1,387		1,387		—		—		—
Others		9,511		9,450		61		—		—
Total contractual obligations		421,946		178,311		75,336		58,585		109,714

⁽¹⁾

Consists of long-term debt, including current portion; gross of unamortized debt discount and debt issuance costs.

See Note 21 – Interest-bearing Financial Liabilities – Long-term Debt for a detailed discussion of our debt.

Our consolidated future minimum lease commitments payable with non-cancellable leases as at December 31, 2020 and 2019 are as follows:

PLDT Group has various obligations to suppliers for the acquisition of phone and network equipment, contractors for services rendered on various projects, foreign administrations and domestic carriers for the access charges, shareholders for unpaid dividends distributions, employees for benefits and other related obligations, and various business and operational related agreements. Total obligations under these various agreements amounted to approximately Php169,808 million and Php153,255 million as at December 31, 2020 and 2019, respectively. See Note 23 – Accounts Payable and Note 24 – Accrued Expenses and Other Current Liabilities.

Our outstanding consolidated commercial commitments, in the form of letters of credit, amounted to nil as at December 31, 2020 and 2019. See Note 11 – Investments in Associates and Joint Ventures – Investments of PLDT in VTI, Bow Arken and Brightshare.

There are no pledges as collaterals with respect to its financial liabilities as at December 31, 2020 and 2019.

Foreign currency exchange risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates.

The revaluation of our foreign currency-denominated financial assets and liabilities as a result of the appreciation or depreciation of the Philippine Peso is recognized as foreign exchange gains or losses as at the end of the reporting period. The extent of foreign exchange gains or losses is largely dependent on the amount of foreign currency denominated financial assets and liabilities. While a certain percentage of our revenues are either linked to or denominated in U.S. Dollars, a substantial portion of our capital expenditures, a portion of our indebtedness and related interest expense and a portion of our operating expenses are denominated in foreign currencies, mostly in U.S. Dollars. As such, a strengthening or weakening of the Philippine Peso against the U.S. Dollar will decrease or increase in Philippine Peso terms both the principal amount of our foreign currency-denominated debts and the related interest expense, our foreign currency-denominated capital expenditures and operating expenses as well as our U.S. Dollar-linked and U.S. Dollar-denominated revenues. In addition, many of our financial ratios and other financial tests are affected by the movements in the Philippine Peso to U.S. Dollar exchange rate.

To manage our foreign exchange risks and to stabilize our cash flows in order to improve investment and cash flow planning, we enter into forward foreign exchange contracts, currency swap contracts, currency option contracts and other hedging products aimed at reducing and/or managing the adverse impact of changes in foreign exchange rates on our operating results and cash flows. Further details of the risk management strategy are recognized in our hedge designation documentation. We use forward foreign exchange purchase contracts, currency swap contracts and currency option contracts to manage the foreign currency risks associated with our foreign currency-denominated financial liabilities. We accounted for these instruments as either cash flow hedges, wherein changes in the fair value are recognized in our consolidated other comprehensive income until the hedged transaction affects our consolidated income statement or transactions not designated as hedges, wherein changes in the fair value are recognized directly as income or expense for the year.

The impact of the hedging instruments on our consolidated statements of financial position as at December 31, 2020 and 2019 are as follows:

The impact of the hedged items on our consolidated statements of financial position as at December 31, 2020 and 2019 are as follows:

The effect of the cash flow hedge on our consolidated income statements and statements of other comprehensive income as at December 31, 2020 and 2019 are as follows:

The following table shows our consolidated foreign currency-denominated monetary financial assets and liabilities and their Philippine Peso equivalents as at December 31, 2020 and 2019:

As at March 24, 2021, the Philippine Peso-U.S. Dollar exchange rate was Php48.68 to US$1.00. Using this exchange rate, our consolidated net foreign currency-denominated financial liabilities would have increased in Philippine Peso terms by Php853 million as at December 31, 2020.

Approximately 18% and 9% of our total consolidated debts (net of consolidated debt discount) were denominated in U.S. Dollars as at December 31, 2020 and 2019, respectively. Our consolidated foreign currency-denominated debt increased to Php40,872 million as at December 31, 2020 from Php17,029 million as at December 31, 2019, respectively. See Note 21 – Interest-bearing Financial Liabilities. The aggregate notional amount of our consolidated outstanding long-term principal only-currency swap contracts and long-term foreign currency options were US$224 million and US$36 million as at December 31, 2020 and 2019, respectively. Consequently, the unhedged portion of our consolidated debt amounts was approximately 13% (or 5%, net of our consolidated U.S. Dollar cash balances allocated for debt) and 8% (or 8%, net of our consolidated U.S. Dollar cash balances allocated for debt) as at December 31, 2020 and 2019, respectively.

Approximately 16% and 15% of our consolidated revenues were denominated in U.S. Dollars and/or were linked to U.S. Dollars for the years ended December 31, 2020 and 2019, respectively. Approximately 12% and 11% of our consolidated expenses were denominated in U.S. Dollars and/or linked to the U.S. Dollar for the years ended December 31, 2020 and 2019, respectively. In this respect, the higher weighted average exchange rate of the Philippine Peso against the U.S. Dollar increased our revenues and expenses, and consequently, affects our cash flow from operations in Philippine Peso terms. In view of the anticipated continued decline in dollar-denominated/dollar-linked revenues, which provide a natural hedge against our foreign currency exposure, we are progressively refinancing our dollar-denominated debts in Philippine Pesos.

The Philippine Peso appreciated by 5.47% against the U.S. Dollar to Php48.02 to US$1.00 as at December 31, 2020 from Php50.80 to US$1.00 as at December 31, 2019. As a result of our consolidated foreign exchange movements, as well as the amount of our consolidated outstanding net foreign currency financial assets and liabilities, we recognized net consolidated foreign exchange gains of Php1,488 million and Php424 million for the years ended December 31, 2020 and 2019, respectively, while we recognized net consolidated foreign exchange loss of Php771 million for the year ended December 31, 2018.

Management conducted a survey among our banks to determine the outlook of the Philippine Peso-U.S. Dollar exchange rate until March 31, 2021. Our outlook is that the Philippine Peso-U.S. Dollar exchange rate may weaken/strengthen by 1% as compared to the exchange rate of Php48.02 to US$1.00 as at December 31, 2020. If the Philippine Peso-U.S. Dollar exchange rate had weakened/strengthened by 1% as at December 31, 2020, with all other variables held constant, consolidated profit after tax for the year 2020 and stockholders’ equity as at year end 2020 would have been approximately Php870 million and Php909 million, respectively, lower/higher, mainly as a result of consolidated foreign exchange gains and losses on conversion of U.S. Dollar-denominated net assets/liabilities and mark-to-market valuation of derivative financial instruments.

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates.

Our exposure to the risk of changes in market interest rates relates primarily to our long-term debt obligations with floating interest rates.

Our policy is to manage interest cost through a mix of fixed and variable rate debts. We evaluate the fixed to floating ratio of our loans in line with movements of relevant interest rates in the financial markets. Based on our assessment, new financing will be priced either on a fixed or floating rate basis. We enter into interest rate swap agreements in order to manage our exposure to interest rate fluctuations. Further details of the risk management strategy are recognized in our hedge designation documentation. We make use of hedging instruments and structures solely for reducing or managing financial risk associated with our debt obligations and not for trading purposes.

The impact of the hedging instruments on our consolidated statements of financial position as at December 31, 2020 and 2019 are as follows:

The impact of the hedged items on our consolidated statements of financial position as at December 31, 2020 and 2019 are as follows:

The effect of the cash flow hedge on our consolidated income statements and statements of other comprehensive income as at December 31, 2020 and 2019 are as follows:

The following tables set out the carrying amounts, by maturity, of our financial instruments that are expected to have exposure on interest rate risk as at December 31, 2020 and 2019. Financial instruments that are not subject to interest rate risk were not included in the table.

	In U.S. Dollars															Discount/				Fair Value
	Below 1 year			1-2 years		2-3 years		3-5 years		Over 5 years		Total		In Php		Debt Issuance Cost In Php		Carrying Value In Php		In U.S. Dollar		In Php
																(in millions)
Assets:
Debt Instruments at Amortized Cost
U.S. Dollar		—			24		—		—		—		24		1,153		—		1,153		24		1,163
Interest rate		—		0.8962% to 2.0000%			—		—		—		—		—		—		—		—		—
Cash in Bank
U.S. Dollar		49			—		—		—		—		49		2,337		—		2,337		49		2,337
Interest rate	0.0100% to 0.5000%				—		—		—		—		—		—		—		—		—		—
Philippine Peso		103			—		—		—		—		103		4,940		—		4,940		103		4,940
Interest rate	0.0500% to 2.5000%				—		—		—		—		—		—		—		—		—		—
Temporary Cash Investments
U.S. Dollar		254			—		—		—		—		254		12,222		—		12,222		254		12,222
Interest rate	0.0200% to 2.5000%				—		—		—		—		—		—		—		—		—		—
Philippine Peso		385			—		—		—		—		385		18,490		—		18,490		385		18,490
Interest rate	0.3200% to 1.6000%				—		—		—		—		—		—		—		—		—		—
Short-term Investments
U.S. Dollar		10			—		—		—		—		10		480		—		480		10		480
Interest rate		—			—		—		—		—		—		—		—		—		—		—
Philippine Peso		11			—		—		—		—		11		509		—		509		11		509
Interest rate	2.0000%				—		—		—		—		—		—		—		—		—		—
		812			24		—		—		—		836		40,131		—		40,131		836		40,141

Liabilities:
Long-term Debt
Fixed Rate
U.S. Dollar Notes		—			—		—		—		600		600		28,813		634		28,179		632		30,336
Interest rate		—			—		—		—	2.5000% to 3.4500%			—		—		—		—		—		—
U.S. Dollar Fixed Loans		—			11		—		—		—		11		540		—		540		11		545
Interest rate		—		2.8850%			—		—				—		—		—		—		—		—
Philippine Peso		258			313		525		657		1,612		3,365		161,597		457		161,040		3,489		167,520
Interest rate		5.2250	%	3.9000% to 6.7339%		3.9000% to 6.7339%		3.9500% to 6.7339%		4.2500% to 6.7339%			—		—		—		—		—		—
Variable Rate
U.S. Dollar Loans		—			93		39		53		70		255		12,222		69		12,153		255		12,222
Interest rate		—		0.7900% to 1.0500% over LIBOR		1.0500% over LIBOR		1.0500% over LIBOR		1.0500% over LIBOR			—		—		—		—		—		—
Philippine Peso		—			9		4		77		344		434		20,855		101		20,754		434		20,855
Interest rate		—		0.5000% to 0.7500% over PHP BVAL (floor rate 4.5000%)		0.5000% to 0.7500% over PHP BVAL (floor rate 4.5000%)		0.5000% to 0.7500% over PHP BVAL (floor rate 4.5000%)		0.6000% to 0.7500% over PHP BVAL (floor rate 4.5000%)			—		—		—		—		—		—
		258			426		568		787		2,626		4,665		224,027		1,262		222,665		4,821		231,478

As at December 31, 2019

	In U.S. Dollars															Discount/				Fair Value
	Below 1 year		1-2 years			2-3 years		3-5 years		Over 5 years		Total		In Php		Debt Issuance Cost In Php		Carrying Value In Php		In U.S. Dollar		In Php
																(in millions)
Assets:
Debt Instruments at Amortized Cost
Philippine Peso		3		—			—		—		—		3		150		—		150		3		150
Interest rate	4.8371%			—			—		—		—		—		—		—		—		—		—
Cash in Bank
U.S. Dollar		31		—			—		—		—		31		1,586		—		1,586		31		1,586
Interest rate	0.0100% to 1.0000%			—			—		—		—		—		—		—		—		—		—
Philippine Peso		83		—			—		—		—		83		4,228		—		4,228		83		4,228
Interest rate	0.0500% to 1.2500%			—			—		—		—		—		—		—		—		—		—
Other Currencies		2		—			—		—		—		2		92		—		92		2		92
Interest rate	0.1000% to 0.5000%			—			—		—		—		—		—		—		—		—		—
Temporary Cash Investments
U.S. Dollar		72		—			—		—		—		72		3,645		—		3,645		72		3,645
Interest rate	0.7000% to 4.7500%			—			—		—		—		—		—		—		—		—		—
Philippine Peso		276		—			—		—		—		276		14,018		—		14,018		276		14,018
Interest rate	0.1250% to 5.0000%			—			—		—		—		—		—		—		—		—		—
Short-term Investments
Philippine Peso		1		—			—		—		—		1		29		—		29		1		29
Interest rate	1.5000% to 3.0000%			—			—		—		—		—		—		—		—		—		—
Other Currencies		6		—			—		—		—		6		285		—		285		6		285
Interest rate	0.0000%			—			—		—		—		—		—		—		—		—		—
		474		—			—		—		—		474		24,033		—		24,033		474		24,033

Liabilities:
Long-term Debt
Fixed Rate
U.S. Dollar Fixed Loans		—		15			4		—		—		19		952		—		952		19		945
Interest rate		—		2.8850	%	2.8850%			—		—		—		—		—		—		—		—
Philippine Peso		42		376			302		673		1,697		3,090		156,996		408		156,588		3,024		153,644
Interest rate	4.4850% to 5.5000%		3.9000% to 6.7339%			3.9000% to 6.7339%		3.9000% to 6.7339%		4.2500% to 6.7339%			—		—		—		—		—		—
Variable Rate
U.S. Dollar Loans		165		76			26		50		—		317		16,124		47		16,077		317		16,123
Interest rate	0.7900% to 1.4500% over LIBOR		0.7900% to 0.9500% over LIBOR			0.7900% to 0.9500% over LIBOR		1.0500% over LIBOR			—		—		—		—		—		—		—
Philippine Peso		93		69			3		70		139		374		18,975		36		18,939		374		18,975
Interest rate	1.0000% over PHP BVAL		0.5000% to 1.0000% over PHP BVAL			0.5000% to 0.6000% over PHP BVAL		0.5000% to 0.6000% over PHP BVAL		0.6000% over PHP BVAL			—		—		—		—		—		—
		300		536			335		793		1,836		3,800		193,047		491		192,556		3,734		189,687

Fixed rate financial instruments are subject to fair value interest rate risk while floating rate financial instruments are subject to cash flow interest rate risk.

Repricing of floating rate financial instruments is mostly done on intervals of three months or six months. Interest on fixed rate financial instruments is fixed until maturity of the particular instrument.

Approximately 15% and 18% of our consolidated debts were variable rate debts as at December 31, 2020 and 2019, respectively. Our consolidated variable rate debt decreased to Php33,077 million as at December 31, 2020 from Php35,098 million as at December 31, 2019. Considering the aggregate notional amount of our consolidated outstanding long-term interest rate swap contracts of US$40 million and US$233 million as at December 31, 2020 and 2019, respectively, approximately 86% and 88% of our consolidated debts were fixed as at December 31, 2020 and 2019, respectively.

Management conducted a survey among our banks to determine the outlook of the U.S. Dollar and Philippine Peso interest rates until March 31, 2021. Our outlook is that the U.S. Dollar and Philippine Peso interest rates may move 5 basis points, or bps, and 15 bps higher/lower, respectively, as compared to levels as at December 31, 2020. If the U.S. Dollar interest rates had been 5 bps higher/lower as compared to market levels as at December 31, 2020, with all other variables held constant, consolidated profit after tax for the year 2020 and stockholders’ equity as at year end 2020 would have been approximately Php1 million and Php6 million, respectively, lower/higher, mainly as a result of higher/lower interest expense on floating rate borrowings and loss/gain on derivative transactions. If the Philippine Peso interest rates had been 15 bps higher/lower as compared to market levels as at December 31, 2020, with all other variables held constant, consolidated profit after tax for the year 2020 and stockholders’ equity as at year end 2020 would have been approximately Php1.9 million and Php34 million, respectively, lower/higher, mainly as a result of higher/lower interest expense on floating rate borrowings and loss/gain on derivative transactions.

Credit risk is the risk that we will incur a loss arising from our customers, clients or counterparties that fail to discharge their contracted obligations. We manage and control credit risk by setting limits on the amount of risk we are willing to accept for individual counterparties and by monitoring exposures in relation to such limits.

We trade only with recognized and creditworthy third parties. It is our policy that all customers who wish to trade on credit terms are subject to credit verification procedures. In addition, receivable balances are monitored on an on-going basis to reduce our exposure to bad debts.

We established a credit quality review process to provide regular identification of changes in the creditworthiness of counterparties. Counterparty limits are established and reviewed periodically based on latest available financial data on our counterparties’ credit ratings, capitalization, asset quality and liquidity. Our credit quality review process allows us to assess the potential loss as a result of the risks to which we are exposed and allow us to take corrective actions.

The gross carrying amount of financial assets not subject to impairment also represents our maximum exposure to credit risk as at December 31, 2020 and 2019 are as follows:

The table below shows the maximum exposure to credit risk for the components of our consolidated statements of financial position, including derivative financial instruments as at December 31, 2020 and 2019. The maximum exposure is shown gross before both the effect of mitigation through use of master netting and collateral arrangements. The extent to which collateral and other credit enhancements mitigate the maximum exposure to credit risk is described in the footnotes to the table.

For financial assets recognized on our consolidated statements of financial position as at December 31, 2020 and 2019, the gross exposure to credit risk equal their carrying amount.

For financial guarantees granted, the maximum exposure to credit risk is the maximum amount that we would have to pay if the guarantees are called upon. For loan commitments and other credit related commitments that are irrevocable over the life of the respective facilities, the maximum exposure to credit risk is the full amount of the committed facilities.

Maximum exposure to credit risk after collateral held or other credit enhancements

Collateral held as security for financial assets depends on the nature of the instrument. Debt investment securities are generally unsecured. Estimates of fair value are based on the value of collateral assessed at the time of borrowing and are regularly updated according to internal lending policies and regulatory guidelines. Generally, collateral is not held over loans and advances to us except for reverse repurchase agreements. Collateral usually is not held against investment securities, and no such collateral was held as at December 31, 2020 and 2019.

Our policies regarding obtaining collateral have not significantly changed during the reporting period and there has been no significant change in the overall quality of the collateral held by us during the year.

We have not identified significant risk concentrations arising from the nature, type or location of collateral and other credit enhancements held against our credit exposures.

An analysis of the maximum exposure to credit risk for the components of our consolidated statements of financial position, including derivative financial instruments as at December 31, 2020 and 2019:

The table below provides information regarding the credit quality by class of our financial assets according to our credit ratings of counterparties as at December 31, 2020 and 2019:

			Neither past due nor credit impaired				Past due but not
	Total		Class A⁽¹⁾		Class B⁽²⁾		credit impaired		Impaired
	(in million pesos)
December 31, 2020
Cash and cash equivalents		40,237		39,956		281		—		—
Financial instruments at amortized cost:		43,654		12,733		4,725		9,371		16,825
Other financial assets		3,689		2,833		282		—		574
Debt instruments at amortized cost		1,153		1,153		—		—		—
Short-term investments		508		508		—		—		—
Retail subscribers		17,142		3,263		2,348		1,541		9,990
Corporate subscribers		13,318		3,358		228		4,874		4,858
Foreign administrations		1,520		246		567		471		236
Domestic carriers		226		14		38		113		61
Dealers, agents and others		6,098		1,358		1,262		2,372		1,106
Financial instruments at FVPL:		7,855		7,741		114		—		—
Financial assets at FVPL		380		266		114		—		—
Short-term investments		481		481		—		—		—
Other financial assets		6,972		6,972		—		—		—
Interest rate swap		22		22		—		—		—
Financial instruments at FVOCI:		168		168		—		—		—
Financial assets at FVOCI		168		168		—		—		—
Total		91,914		60,598		5,120		9,371		16,825

⁽¹⁾

This includes low risk and good paying customer accounts with no history of account treatment for a defined period and no overdue accounts as at report date; and deposits or placements to counterparties with good credit rating or bank standing financial review.

⁽²⁾

This includes medium risk and average paying customer accounts with no overdue accounts as at report date, and new customer accounts for which sufficient credit history has not been established; and deposits or placements to counterparties not classified as Class A.

			Neither past due nor credit impaired				Past due but not
	Total		Class A⁽¹⁾		Class B⁽²⁾		credit impaired		Impaired
	(in million pesos)
December 31, 2019
Cash and cash equivalents		24,369		24,111		258		—		—
Financial instruments at amortized cost:		43,308		11,439		7,676		6,991		17,202
Other financial assets		3,504		1,747		1,452		7		298
Debt instruments at amortized cost		150		150		—		—		—
Short-term investments		314		314		—		—		—
Retail subscribers		17,178		3,280		1,634		1,572		10,692
Corporate subscribers		13,005		3,652		2,041		2,710		4,602
Foreign administrations		1,896		460		414		645		377
Domestic carriers		889		374		40		385		90
Dealers, agents and others		6,372		1,462		2,095		1,672		1,143
Financial instruments at FVPL:		10,277		10,160		117		—		—
Financial assets at FVPL		3,369		3,252		117		—		—
Other financial assets		6,866		6,866		—		—		—
Interest rate swap		31		31		—		—		—
Forward foreign exchange contracts		8		8		—		—		—
Currency swap		2		2		—		—		—
Long-term currency swap		1		1		—		—		—
Financial instruments at FVOCI:		2,919		2,919		—		—		—
Financial assets at FVOCI		2,919		2,919		—		—		—
Total		80,873		48,629		8,051		6,991		17,202

⁽¹⁾

⁽²⁾

The aging analysis of past due but not impaired class of financial assets as at December 31, 2020 and 2019 are as follows:

					Past due but not credit impaired
	Total		Neither past due nor credit impaired		1-60 days		61-90 days		Over 91 days		Impaired
	(in million pesos)
December 31, 2020
Cash and cash equivalents		40,237		40,237		—		—		—		—
Financial instruments at amortized cost:		43,654		17,458		3,090		1,139		5,142		16,825
Other financial assets		3,689		3,115		—		—		—		574
Debt instruments at amortized cost		1,153		1,153		—		—		—		—
Short-term investments		508		508		—		—		—		—
Retail subscribers		17,142		5,611		884		348		309		9,990
Corporate subscribers		13,318		3,586		1,606		559		2,709		4,858
Foreign administrations		1,520		813		144		70		257		236
Domestic carriers		226		52		31		10		72		61
Dealers, agents and others		6,098		2,620		425		152		1,795		1,106
Financial instruments at FVPL:		7,855		7,855		—		—		—		—
Financial assets at FVPL		380		380		—		—		—		—
Short-term investments		481		481		—		—		—		—
Other financial assets		6,972		6,972		—		—		—		—
Interest rate swap		22		22		—		—		—		—
Financial instruments at FVOCI:		168		168		—		—		—		—
Financial assets at FVOCI		168		168		—		—		—		—
Total		91,914		65,718		3,090		1,139		5,142		16,825

December 31, 2019
Cash and cash equivalents		24,369		24,369		—		—		—		—
Financial instruments at amortized cost:		43,308		19,115		2,006		1,247		3,738		17,202
Other financial assets		3,504		3,199		—		—		7		298
Debt instruments at amortized cost		150		150		—		—		—		—
Short-term investments		314		314		—		—		—		—
Retail subscribers		17,178		4,914		994		150		428		10,692
Corporate subscribers		13,005		5,693		705		770		1,220		4,617
Foreign administrations		1,896		874		41		26		578		377
Domestic carriers		889		414		103		240		43		89
Dealers, agents and others		6,372		3,557		163		61		1,462		1,129
Financial instruments at FVPL:		10,277		10,277		—		—		—		—
Financial assets at FVPL		3,369		3,369		—		—		—		—
Other financial assets		6,866		6,866		—		—		—		—
Interest rate swap		31		31		—		—		—		—
Forward foreign exchange contracts		8		8		—		—		—		—
Currency swap		2		2		—		—		—		—
Long-term currency swap		1		1		—		—		—		—
Financial instruments at FVOCI:		2,919		2,919		—		—		—		—
Financial assets at FVOCI		2,919		2,919		—		—		—		—
Total		80,873		56,680		2,006		1,247		3,738		17,202

We aim to achieve an optimal capital structure in pursuit of our business objectives which include maintaining healthy capital ratios and strong credit ratings, and maximizing shareholder value.

Our approach to capital management focuses on balancing the allocation of cash and the incurrence of debt as we seek new investment opportunities for new businesses and growth areas. On August 5, 2014, the PLDT Board of Directors approved an amendment to our dividend policy, increasing the dividend payout rate to 75% from 70% of our core EPS as regular dividends. However, in view of our elevated capital expenditures to build-out a robust, superior network to support the continued growth of data traffic, plans to invest in new adjacent businesses that will complement the current business and provide future sources of profits and dividends, and management of our cash and gearing levels, the PLDT Board of Directors approved on August 2, 2016, the amendment of our dividend policy, reducing the regular dividend payout to 60% of core EPS. In declaring dividends, we take into consideration the interest of our shareholders, as well as our working capital, capital expenditures and debt servicing requirements. The retention of earnings may be necessary to meet the funding requirements of our business expansion and development programs.

As part of the dividend policy, in the event no investment opportunities arise, we may consider the option of returning additional cash to our shareholders in the form of special dividends or share buybacks. Philippine corporate regulations prescribe, however, that we can only pay out dividends or make capital distribution up to the amount of our unrestricted retained earnings.

Some of our debt instruments contain covenants that impose maximum leverage ratios. In addition, our credit ratings from the international credit ratings agencies are based on our ability to remain within certain leverage ratios.

No changes were made in our objectives, policies or processes for managing capital during the years ended December 31, 2020, 2019 and 2018.