We are exposed to market risks that arise from changes in foreign exchange rates and interest rates risk, each of which will have an impact on us. We do not generally hedge our long-term liabilities in foreign currencies but hedge our obligations for the current year. As of December 31, 2021, assets in foreign currencies represented 590% of our liabilities denominated in foreign currencies. Our exposure to interest rate risk is managed through a mix of fixed and variable rate liabilities and assets, including short-term fixed rate assets. Our exposure to such market risks fluctuated during 2019, 2020 and 2021 as the Indonesian economy was affected by changes in the U.S. Dollar to Indonesian Rupiah exchange rate and interest rates themselves.
We are not able to predict whether such conditions will continue during 2022 or thereafter.
Foreign Exchange Rate Risk
We are exposed to foreign exchange risk on sales, purchases and borrowings that are denominated in foreign currencies, primarily in U.S.
Dollar and Japanese Yen. Our exposures to other foreign exchange rates are not material. The foreign currency exchange rate risks on our obligations are expected to be partly offset by time deposits and receivables denominated in foreign currencies, which are generally equal to at least 25% of our current foreign currency liabilities.
For the sensitivity analysis of the risk of foreign exchange rate exposure, we take into consideration the assets and liabilities with exposure to the fluctuation of exchange rates recorded in our consolidated balance sheet. This analysis considers only financial assets and financial liabilities registered in U.S. Dollar and Japanese Yen, since our exposure to exchange variations against other foreign currencies is not material.
Information on such sensitivity analysis showing the impact on our equity and profit/(loss) of hypothetical variations of the U.S. Dollar and the Japanese Yen against the Rupiah as of December 31, 2021 can be found in Note 35.b.i of our Consolidated Financial Statements. As of December 31, 2021, we estimate that 1% appreciation of the U.S. Dollar against the Rupiah and 5% appreciation of the Japanese Yen against the Rupiah would cause Rp164 billion profit (compared to Rp33 billion profit as of December 31, 2020) and Rp14 billion loss (compared to Rp21 billion loss as of December 31, 2020), respectively. Further, as of December 31, 2021, we estimate that 1% depreciation of the U.S. Dollar against the Rupiah and 5% depreciation of the Japanese Yen against the Rupiah would cause Rp164 billion loss and Rp14 billion profit, respectively. The analysis assumes that all other variables, in particular foreign currency rates, remain constant.
The below table shows a break down by main categories of financial assets and financial liabilities of our exposure to foreign currency risk as of December 31, 2021:
Foreign Exchange Risk Outstanding Balance
as of December 31, 2021 Expected Maturity Date
Foreign Rp Fair
Currency Equivalent 2022 2023 2024 2025 2026 Thereafter Value
(million) (Rp billion) (Rp billion)
ASSETS
Cash and Cash Equivalents
U.S. Dollar 274 3,908 3,908 — — — — — 3,908
Japanese Yen 1 0 0 — — — — — 0
Others(1) 16 233 233 — — — — — 233
Other Current Financial Assets
U.S. Dollar 12 165 165 — — — — — 165
Others(1) — — — — — — — — —
Trade Receivables Related Parties
U.S. Dollar 0 1 1 — — — — — 1
Others(1) — — — — — — — — —
Third Parties
U.S. Dollar 113 1,604 1,604 — — — — — 1,604
Others(1) 6 92 92 — — — — — 92
Contract Assets
U.S. Dollar 34 489 489 — — — — — 489
Others(1) — — — — — — — — —
Other Receivables
U.S. Dollar 0 4 4 — — — — — 4
Others(1) 0 2 2 — — — — — 2
Foreign Exchange Risk Outstanding Balance
as of December 31, 2021 Expected Maturity Date
Foreign Rp Fair
Currency Equivalent 2022 2023 2024 2025 2026 Thereafter Value
(million) (Rp billion) (Rp billion)
Other Current Assets
U.S. Dollar 0 4 4 — — — — — 4
Others(1) 1 9 9 — — — — — 9
Long-term Investment in Financial Instruments
U.S. Dollar 927 13,215 13,215 — — — — — 13,215
Japanese Yen — — — — — — — — —
Others(1) 9 133 133 — — — — — 133
Other Non-current Assets
U.S. Dollar 3 47 47 — — — — — 47
Others(1) 1 15 15 — — — — — 15
LIABILITIES Trade Payables Related Parties
U.S. Dollar 0 0 0 — — — — — 0
Others(1) — — — — — — — — —
Third Parties
U.S. Dollar 106 1,504 1,504 — — — — — 1,504
Japanese Yen 2 0 0 — — — — — 0
Others(1) 6 81 81 — — — — — 81
Other Payables
U.S. Dollar 3 44 44 — — — — — 44
Others(1) 2 22 22 — — — — — 22
Accrued Expenses
U.S. Dollar 47 673 673 — — — — — 673
Japanese Yen 8 1 1 — — — — — 1
Others(1) 2 29 29 — — — — — 29
Advances from Customers
U.S. Dollar 0 2 2 — — — — — 2
Others(1) 1 10 10 — — — — — 10
Short-term Bank Loans
U.S. Dollar — — — — — — — — —
Current Maturities of Long-term Liabilities
U.S. Dollar 17 245 245 — — — — — 245
Japanese Yen 768 95 95 — — — — — 95
Others(1) 4 62 62 — — — — — 62
Other Liabilities
U.S. Dollar 0 4 4 — — — — — 4
Others(1) — — — — — — — — —
Long-term Liabilities(2)
U.S. Dollar 37 529 — 221 147 52 109 — 529
Japanese Yen 1,536 190 — 105 85 — — — 190
Others(1) 35 492 — 53 53 53 53 280 492
Notes:
(1) Assets and liabilities denominated in other foreign currencies are presented as U.S. Dollar equivalent using the Reuters bid and offer rates prevailing at the end of the reporting period.
(2) Long-term liabilities for the purpose of this table consist of loans denominated in foreign currencies from two-step loans and long-term bank loans.
Interest Rate Risk
Our exposure to interest rate fluctuations results primarily from changes to the floating rate applied for long-term debt. Borrowings at variable interest rates expose our Company and our subsidiaries to interest rate risk. In order to reduce our exposure to interest rate fluctuations, we aim to balance the share of our fixed rate loans and floating rate loans in our bank borrowings. We try to achieve this where there are opportunities to increase the share of fixed-rate loans in our overall loan portfolio in light of prevailing interest rates available in the market at any given time and based on market and our expectations as to future floating and fixed interest rates. As of December 31, 2021, approximately 63.6% (based on the aggregate then outstanding principal) of our total bank borrowings were floating-rate loans. To measure market risk fluctuations in interest rates, our Company and our subsidiaries primarily use the interest margin and maturity profile of the financial assets and liabilities based on the changing schedule of the interest rate.
In this annual report on Form 20-F, we chose to provide investors with the results of a sensitivity analysis related to our interest rate risk sensitive instruments as opposed to the tabular presentation of information related to interest rate risk sensitive instruments we disclosed in previous annual reports on Form 20-F. We believe such presentation, together with comparable information for the financial year ended December 31, 2021, makes it easier to understand the impact of variations in interest rates on our Company's financial performance and financial position as we use selected hypothetical changes in interest rates to illustrate such impact. We also believe this type of sensitivity analysis provides useful information and is widely used by investors for measuring the impact of such variations on interest rate risk sensitive instruments held by issuers.
As of December 31, 2021, we estimate that a decrease by 25 basis points in the interest rates of our variable rate borrowings would have increased our equity and profit or loss by Rp109 billion (compared with a Rp99 billion increase as of December 31, 2020); a similar increase by 25 basis points in the interest rates of our variable rate borrowings would have decreased our equity and profit or loss by Rp109 billion (compared with a Rp99 billion decrease as of December 31, 2020). The analysis assumes that all other variables, in particular foreign currency rates, remain constant.
Credit Risk
Credit risk is the potential financial loss resulting from the failure of a customer or counterparty to settle its financial obligations to us in accordance with the terms and conditions of the contract as and when they fall due. Credit risk arises mainly from trade receivables from the sales of products and services. Our management has a credit policy in place to monitor credit risk on an ongoing basis. As of December 31, 2021, there were no significant concentrations of credit risk. Since early 2020, due to the COVID-19 outbreak, some of our certain customers particularly in the Enterprise segment have been facing business and financial difficulties. We have increased the monitoring of our customers' accounts and the balance of our receivables. We have agreement to postpone payments of fees due for certain of our enterprise customers in consideration of our pre-existing business relationship with them and in light of current circumstances and hardship. In an effort to attenuate such counterparty risk, since early 2020 we have asked our individual customers to make a one-month deposit based on their standard subscription fee that can be used to offset any fee amount accrued and unpaid. As of December 31, 2021, customers' default on fee payments had not significantly increased compared to the preceding financial year. For additional information on the maximum exposure to credit risk of our financial assets as of December 31, 2021, please refer to Note 35.b.iv to our Consolidated Financial Statements.
Foreign Exchange Rate Risk
We classify our financial assets as at amortized cost, at Fair Value through Profit or Loss ("FVTPL") and Fair Value through Other Comprehensive Income ("FVTOCI"). We are exposed to changes in debt and equity market prices related to financial assets measured at FVTPL carried at fair value. Gains arising from changes in the fair value of financial assets measured at FVTPL are recognized in our consolidated statements of profit or loss and other comprehensive income. We monitor periodically the performance of our financial assets measured at FVTPL, and we regularly assess their relevance to our long-term strategic plans.
As of December 31, 2021, our management considered the price risk for our financial assets measured at FVTPL to be immaterial in terms of the possible impact on profit or loss and total equity from a reasonably possible change in fair value.
Liquidity Risk
Liquidity risk arises in situations where we experience difficulties in fulfilling our financial obligations when they become due. Prudent liquidity risk management implies maintaining sufficient cash in order to meet our financial obligations. We regularly monitor our financial position ratios, such as liquidity ratios and debt-to-equity ratios, and our ability to comply with applicable covenant in our financial agreements. For additional information on our exposure to liquidity risk, please refer to Note 35.b.v to our Consolidated Financial Statements.
(1)
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES