Orient Securities Company Limited(600958) underwriting sponsor Co., Ltd
About Pharmaron Beijing Co.Ltd(300759) (Beijing) new drug Technology Co., Ltd
Verification opinions on the expected transaction amount of hedging products in 2022
Orient Securities Company Limited(600958) underwriting sponsor Co., Ltd. (hereinafter referred to as “Oriental Investment Bank” or “sponsor”) as a sponsor of Pharmaron Beijing Co.Ltd(300759) (Beijing) new drug Technology Co., Ltd. (hereinafter referred to as ” Pharmaron Beijing Co.Ltd(300759) ” or “company”) for initial public offering of shares and listing on GEM, in accordance with the guidelines for self discipline supervision of listed companies of Shenzhen Stock Exchange No. 13 – sponsor business In accordance with the requirements of relevant laws, regulations and normative documents, such as the Listing Rules of Shenzhen Stock Exchange on the gem and the self regulatory guidelines for listed companies of Shenzhen Stock Exchange No. 2 – standardized operation of listed companies on the gem, the estimated transaction amount of hedging products in Pharmaron Beijing Co.Ltd(300759) 2022 has been verified. The details are as follows:
1、 Basic information of hedging business
1. Investment purpose
In recent years, the exchange rate of US dollar and other foreign currencies against RMB fluctuates greatly, which has a certain impact on the company’s financial situation. In order to hedge the risk of exchange rate fluctuation of foreign currency against RMB, prevent the adverse impact of large exchange rate fluctuation on the company, improve the efficiency of capital use and enhance financial robustness, the company plans to continue to carry out foreign exchange hedging product transactions.
2. Investment amount
According to the company’s export revenue, overseas business scale, overseas financing and the practices of Companies in the same industry, the company and its subsidiaries are expected to carry out hedging product transactions of US $800 million or other equivalent foreign currencies in 2022. The above trading quota can be recycled within the investment period.
3. Investment mode
The business categories of the proposed investment products are: forward foreign exchange business, swap business, foreign exchange options and other hedging products trading business. The main foreign currency is USD. The risk level of such products is low.
4. Investment term this investment is valid from the date of deliberation and approval of the 2021 annual general meeting of shareholders to the date of holding the 2022 annual general meeting of shareholders. Request the general meeting of shareholders to authorize the chairman of the company and his authorized representative to sign
5. Source of funds
The source of funds is the company’s own funds, and there is no direct or indirect use of A-share raised funds and bank loan funds to engage in this business.
This proposal has been deliberated and adopted at the 18th meeting of the second board of directors and the 14th meeting of the second board of supervisors of the company. It still needs to be submitted to the general meeting of shareholders of the company for deliberation. It will come into force after being deliberated and approved by the general meeting of shareholders. The company and its subsidiaries have no relationship with financial institutions that provide hedging products.
When the hedging business actually occurs, according to the authorization of the general meeting of shareholders, the company and its subsidiaries and relevant financial institutions shall jointly negotiate and determine the transaction quantity, transaction amount, transaction contract term, performance guarantee, transaction leverage ratio, liquidity arrangement, liquidation and settlement principle, payment method, liability for breach of contract and other contents within the above limit, and sign relevant contracts. Relevant hedging business matters shall be subject to the officially signed documents.
2、 Investment risk analysis and risk control measures
(I) investment risk analysis
The company follows the principle of prudence. All hedging businesses are based on normal production and operation, rely on specific business operations, and aim to avoid and prevent exchange rate risks. However, there are certain risks in hedging business, mainly including:
1. Market risk: when the trend of foreign exchange rate deviates from the judgment of the company, the cost of the company’s foreign exchange hedging business may exceed the expectation, resulting in the loss of the company;
2. Liquidity risk: on the one hand, due to the imperfect and asymmetric market information of foreign exchange hedging business and the lack of deep secondary trading market, the liquidity of products in the market is insufficient; On the other hand, the foreign exchange hedging business market is a one-to-one personalized contract and due liquidation, which also breeds the risk of poor liquidity;
3. Credit risk: if the foreign exchange hedging counterparty defaults and fails to pay the hedging profit of the company as agreed, the actual exchange loss of the company cannot be hedged, which will cause the loss of the company;
4. Operational risk: foreign exchange hedging business is highly professional and complex, which may cause losses in the process of handling foreign exchange hedging business due to staff operation errors, system failures and other reasons;
5. Legal risk: in the process of foreign exchange hedging business, the legal risk caused by the signing of contracts by the company.
(II) risk control measures
1. The company has formulated the management system of financial derivatives trading business, which clearly stipulates the operation regulations, business processes, confidentiality system, risk management and other aspects of foreign exchange hedging business;
2. In order to control market risks, the company will strengthen the research and analysis of exchange rate, pay real-time attention to the changes in the international and Chinese market environment, timely adjust the operation and business operation strategies, and avoid exchange losses to the greatest extent;
3. In order to reduce liquidity risk, the company tries to shorten the contract period and carry out foreign exchange hedging business for many times in a short time;
4. In order to control credit risk, the company only carries out foreign exchange hedging business with banks and other financial institutions with relevant business operation qualifications to ensure the legitimacy of the company’s hedging product transaction management;
5. In order to prevent operational risks, all foreign exchange transactions of the company are aimed at avoiding and preventing exchange rate risks. Speculation and arbitrage transactions are not allowed, and business operations are carried out in strict accordance with the provisions of the financial derivatives trading business management system, so as to effectively ensure the implementation of the system. The internal control and internal audit department of the company shall regularly audit the actual operation, capital use and profit and loss of foreign exchange hedging business, and check whether the transaction and information disclosure are implemented in accordance with relevant internal control systems;
6. In order to prevent the legal status of the company’s counterparties in the process of contract signing, the legal status of the company will be reviewed to prevent risks.
3、 Impact of investment on the company
In carrying out hedging business, the company and its subsidiaries can make full use of hedging tools to reduce or avoid exchange rate risks caused by exchange rate fluctuations, reduce exchange losses and control operational risks. According to the relevant provisions and guidelines of the Ministry of finance, such as accounting standards for Business Enterprises No. 22 – recognition and measurement of financial instruments, accounting standards for Business Enterprises No. 24 – hedge accounting, accounting standards for Business Enterprises No. 37 – presentation of financial instruments, accounting standards for Business Enterprises No. 39 – fair value measurement, the company has carried out corresponding accounting treatment for the foreign exchange hedging business, Reflect relevant items in the balance sheet and income statement.
4、 Relevant review and approval procedures
(I) deliberations of the board of directors
The 18th meeting of the second board of directors held by the company deliberated and adopted the proposal on the confirmation of hedging product transactions in 2021 and the prediction of hedging product transaction amount in 2022.
(II) deliberation of the board of supervisors
The 14th meeting of the second board of supervisors held by the company deliberated and adopted the above proposal.
(III) opinions of independent directors
The independent directors of the company expressed clear agreement on this: the hedging trading business carried out by the company is closely related to the daily business needs. The settlement currency between the company and its main customers is US dollars. When the exchange rate fluctuates greatly, the exchange gain and loss will have a certain impact on the company’s operating performance. It is reasonable for the company to carry out hedging business to avoid exchange rate and interest rate risks. The company has formulated the financial derivatives trading business management system, which has been deliberated and approved by the board of directors, and the relevant businesses have performed the corresponding decision-making procedures, which can effectively standardize the hedging trading behavior and control the hedging trading risk. The actual amount of hedging product transactions of the company in 2021 is within the amount considered by the company, and the amount in 2022 is expected to be in line with the business development. The hedging transactions of the company are carried out in strict accordance with the relevant systems, and there is no damage to the interests of listed companies and shareholders. We agree to the matter and agree to submit it to the general meeting of shareholders for deliberation.
6、 Verification opinions of the recommendation institution
After verification, the recommendation institution believes that:
1. On the premise of ensuring normal production and operation, it is necessary for the company to carry out foreign exchange hedging business, which is conducive to avoiding and preventing the adverse impact of exchange rate fluctuations on the company’s operation and controlling exchange rate risk;
2. The company has formulated the financial derivatives trading business management system as the internal control and risk management system for foreign exchange hedging business in accordance with the requirements of relevant laws and regulations;
3. The company’s foreign exchange hedging business has been deliberated and approved at the 18th meeting of the second board of directors and the 14th meeting of the second board of supervisors, and the independent directors have expressed their consent. This matter needs to be submitted to the general meeting of shareholders for deliberation. The above matters have fulfilled the necessary deliberation procedures and comply with the provisions of relevant laws and regulations such as the Listing Rules of GEM stocks of Shenzhen Stock Exchange, the self regulatory guidelines for listed companies of Shenzhen Stock Exchange No. 2 – standardized operation of listed companies on GEM, etc.
The recommendation institution draws the company’s attention: in the process of foreign exchange hedging business, it is necessary to strengthen the training and risk responsibility education of business personnel, implement specific risk control measures and responsibility investigation mechanism, and eliminate speculation aimed at profit.
The sponsor draws investors’ attention: Although the company has taken corresponding risk control measures for foreign exchange hedging business, the inherent exchange rate fluctuation risk of foreign exchange hedging business and the inherent limitations of internal control may have an impact on the company’s operating performance.
In conclusion, the recommendation institution agrees with the above matters of the company to carry out foreign exchange hedging business.
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(there is no text on this page, which is the signature and seal page of Orient Securities Company Limited(600958) underwriting recommendation Co., Ltd. on the verification opinions of Pharmaron Beijing Co.Ltd(300759) (Beijing) new drug Technology Co., Ltd. on the expected transaction amount of hedging products in 2022) recommendation representative:
Cui Hongjun
Zheng Rui
Orient Securities Company Limited(600958) underwriting and recommendation Co., Ltd. March 25, 2022
