IFRS 9 - Loan facility at below market interest rate (intercompany loan)

[SirAnonymous]

Hello
I have a question and looking for assistance in relation to IFRS 9 and intercompany loans

Background (facts changed to preserve anonymity)
Company A and Company B entered into a loan agreement for A to provide a loan facility of $100mm to B. Note this is just the facility and any cash drawdowns of this facility are agreed between A and B upon receipt of a request from a borrower. i.e there was no fixed dates agreed or any fixed drawdowns agreed up front.
The loan is provided interest free and any principle drawn is repayable within 6 years. Each drawdown of the loan facility has been discounted to fair value based on an effective interest rate calculated as at the date of each drawdown (applying principles of IFRS 9 para B5.1.1). For example if $10mm was drawn in month 1, year 1, then this was discounted to fair value based on effective interest rate at that time, then if $50mm was drawn in month 3, year 2, then this was discounted to FV based on EIR at that time etc...
Is this correct or does the value of the entire facility have to be taken into consideration at the inception. I don't see how this would be possible since we would not know at the start what is the discounted cash flow profile of the loan since there are no fixed dates for drawdowns. Is the facility itself even a financial instrument or is it correct that it is each drawdown that is effectively been treated as a seperate financial instrument (liability) and discounted to fair value?

[JRSB]

when you say 'based on effective interest rate', do you mean by reference to a market rate of interest, ie what a third party funder/bank would have charged?
you say repayment is 'within 6 years' but is there anything more concrete to show this is non-current, ie it is repayable 'in 6 years time' etc? can parent demand repayment at any time? in absence of agreed terms, presumably yes.

[DJP]

The credit facility is a loan commitment and it is explicitly excluded from IFRS 9 (see paragraph 2.1 (g)). You don't account for it, although IFRS 9's impairment requirements do apply.

So yes, you should account for the drawdowns as separate financial instruments.

[SirAnonymous]

when you say 'based on effective interest rate', do you mean by reference to a market rate of interest, ie what a third party funder/bank would have charged?
you say repayment is 'within 6 years' but is there anything more concrete to show this is non-current, ie it is repayable 'in 6 years time' etc? can parent demand repayment at any time? in absence of agreed terms, presumably yes.

Hi yes I mean by reference to market rates of interest. No the parent cannot demand repayment at any time. There is no issue about the current vs non current nature of the loan

[SirAnonymous]

The credit facility is a loan commitment and it is explicitly excluded from IFRS 9 (see paragraph 2.1 (g)). You don't account for it, although IFRS 9's impairment requirements do apply.

So yes, you should account for the drawdowns as separate financial instruments.

But doesn't 2.3 (c) scope in commitments to provide a loan at a below-market interest rate?

[DJP]

Indeed it does, but this is a transaction between two entities under common control. I wonder how "commited" this facility is, and so I think you can make a case not to recognise this facility. Otherwise you need to apply paragraph 4.2.1 (d).

[SirAnonymous]

Yeah I agree I'm hoping the auditors are of the same view, it doesn't seem logical to somehow capture the whole facility including undrawn portions when we have no commitments of specific drawdowns on specific dates in the future.
Thanks for your help