Shanghai Baolijia Chemical Co.Ltd(301037)
Feasibility analysis report on developing futures hedging business I. purpose and necessity of Futures Hedging
Shanghai Baolijia Chemical Co.Ltd(301037) (hereinafter referred to as “the company”) carries out futures hedging business mainly because the bulk commodities styrene, methanol and polyolefin are the raw materials required for the production of the company and its subsidiaries. The sharp fluctuation of the prices of styrene, methanol and polyolefin has a certain impact on the purchase cost of the company’s raw materials. Therefore, it is necessary for the company to take active measures to make full use of the hedging function of the futures market, reduce the company’s procurement risk, improve the company’s overall risk resistance ability and enhance financial stability. 2、 Proposed futures hedging business
1. Trading varieties: trading varieties are limited to styrene, methanol, polyolefin and other futures varieties listed and traded in domestic futures exchanges related to raw materials required for the production of the company and its subsidiaries.
2. Business quota: the maximum amount of recyclable margin occupied in the development of futures hedging business shall not exceed (i.e. no more than) RMB 60 million at any time point.
3. Use period of the quota: the use period of the quota is within 12 months after it is deliberated and approved by the general meeting of shareholders. Within the validity period, the quota can be recycled and rolled. If the duration of a single transaction exceeds the authorization period, the authorization period will be automatically extended to the termination of the transaction.
4. Authorization and authorization period: in view of the close relationship between the above futures hedging business and the operation of the company, the general meeting of shareholders of the company is requested to authorize the general manager of the company to carry out the above futures hedging business within the above quota scope and quota use period.
5. Source of funds: the company will use its own funds for futures hedging business. 3、 Risk analysis of hedging business
The company’s futures hedging business is not for profit, but mainly to improve the company’s overall ability to resist risks and enhance financial stability, but there are certain risks at the same time, as follows:
1. Price fluctuation risk: the futures market changes greatly, which may produce price fluctuation risk and cause losses in futures trading.
2. Liquidity risk: there is liquidity risk in the implementation of hedging strategy. If the internal execution cost is very high or the liquidity of futures market is poor, it is difficult to implement hedging strategy, which will form exposure to market risk.
3. Operational risk: futures trading is highly professional and complex, which may lead to improper operation or operation failure due to imperfect internal control system, resulting in corresponding risks.
4. Technical risk: due to uncontrollable and unpredictable system failure, network failure and communication failure, the trading system operates abnormally, resulting in problems such as delay, interruption or data error of trading instructions, resulting in corresponding risks.
5. Policy risk: the risk of drastic changes or inability to trade in the futures market due to changes in national laws, regulations and policies, the revision of trading rules of futures exchanges and the introduction of emergency measures. 4、 Risk control measures taken by the company
1. The company has formulated the financial derivatives trading business management system in accordance with the relevant provisions of the Shenzhen Stock Exchange gem stock listing rules, the Shenzhen Stock Exchange GEM listed companies standardized operation guidelines and other relevant provisions, in combination with the actual situation of the company, to review and approve the financial derivatives trading business, information disclosure, internal operation procedures Make clear provisions on risk management and handling procedures. The company will control all links, implement risk prevention measures and operate prudently in strict accordance with the provisions of the financial derivatives trading business management system. 2. The company will follow the principle of locking the price risk of raw materials and hedging, and operate only for the futures trading varieties related to the raw materials required for the production of the company and its subsidiaries, rather than speculative futures trading. 3. The company will strictly control the capital scale of hedging, reasonably plan and use the margin, and will not use the raised funds for futures hedging directly or indirectly.
4. The futures hedging business to be carried out by the company can only be carried out in the on-site market, not in the OTC market.
5. The Audit Department of the company shall regularly and irregularly inspect the hedging transaction business, supervise the hedging transaction business personnel to implement the risk management system and risk management procedures, and timely prevent operational risks in the business. 5、 Accounting policies and accounting principles
The company will conduct corresponding accounting and treatment for the futures hedging business to be carried out in strict accordance with the relevant provisions of the accounting standards for Business Enterprises No. 22 – recognition and measurement of financial instruments and the accounting standards for Business Enterprises No. 24 – hedge accounting issued by the Ministry of finance of the people’s Republic of China. Changes in the fair value of futures products used in futures hedging business will be included in the current profits and losses of the company, so as to increase or decrease the profits of the company. 6、 Conclusion of feasibility analysis
The relevant approval procedures for the futures hedging business carried out by the company with its own funds comply with the relevant provisions of relevant national laws and regulations. The company has established a sound organizational structure for futures hedging trading, and formulated a sound business operation process, approval process and financial derivatives trading business management system. On the premise of ensuring normal production and operation, the company uses its own funds to carry out futures hedging trading business, which is conducive to improving the overall ability to resist risks and enhance financial stability, without damaging the interests of the company and all shareholders.
To sum up, it is beneficial and feasible for the company to carry out futures hedging business.
Shanghai Baolijia Chemical Co.Ltd(301037) board of directors December 31, 2021
