Guangxi Liugong Machinery Co.Ltd(000528) board meeting proposal
Feasibility analysis report on the company's financial derivatives trading business
In order to effectively control the exchange rate fluctuation risk caused by foreign currency settlement in the process of production and operation of the company, avoid the foreign exchange market risk by making rational use of financial derivatives trading business, reduce the impact of exchange rate and interest rate fluctuations on the company's profits, and realize the stable operation of the company, the company plans to develop financial derivatives trading business of no more than 136 million US dollars. In accordance with the relevant provisions of the guidelines for the standardized operation of listed companies of Shenzhen Stock Exchange, the feasibility statement of carrying out financial derivatives trading business is as follows:
1、 Background of applying for financial derivatives trading business
With the rapid development of Guangxi Liugong Machinery Co.Ltd(000528) international business, the scale of overseas operation and foreign exchange business of Guangxi Liugong Machinery Co.Ltd(000528) shares and holding subsidiaries is expanding day by day. The diversification of settlement currencies is a necessary means to support the rapid advancement of Guangxi Liugong Machinery Co.Ltd(000528) international business in depth and breadth. In recent years, affected by international political, economic and other factors, the fluctuation of exchange rate and interest rate has been increasing, which has a great impact on the operating performance of the company. In order to reduce the impact of price fluctuations such as exchange rate and interest rate on the company's profits and meet the needs of business strategy, so that the company can maintain a relatively stable profit level for a long time and focus on production and operation, the company must carry out reasonable and effective risk management.
2、 Overview of financial derivatives trading business to be carried out
The financial derivatives business to be carried out by the company and its holding subsidiaries mainly includes forward foreign exchange settlement and sales, differential trading, simple options, interest rate and currency swaps, NDF trading and spot foreign exchange trading.
(I) forward foreign exchange settlement and sales business
For the company's import and export business, sign forward foreign exchange settlement and purchase contracts with banks to lock the future foreign exchange settlement and purchase exchange rate of foreign exchange against RMB and eliminate the impact of exchange rate fluctuations.
(II) difference transaction
In order to lock the bookkeeping exchange rate and reduce the risk of accounting statements.
(III) simple option
In order to increase hedging measures and effectively avoid exchange rate risk, the company will try to use simple options and other products as supplementary and standby hedging means.
(IV) interest rate swap
Interest rate swap is a transaction in which both parties exchange loans in the same currency for interest payment, such as floating interest rate for fixed interest rate or another floating interest rate. The company converts the floating interest rate of foreign currency loans into fixed interest rate through interest rate swap to hedge interest rate risk.
Guangxi Liugong Machinery Co.Ltd(000528) board meeting proposal
(V) currency swap business
According to the different needs of the company's near and far cash flow, sign currency swap contracts with banks to avoid the impact of exchange rate fluctuations.
(VI) NDF transaction
The risk currencies faced by the company are becoming more and more diversified and the exchange rate fluctuates more and more, such as Brazilian real, Indian rupee, Polish zloty, Indonesian rupiah, etc. the NDF trading strategy is reasonably selected in combination with the foreign exchange control of various countries and regions.
(VII) spot foreign exchange trading
Spot foreign exchange trading refers to the spot foreign exchange trading between different currencies (excluding RMB) through the bank's foreign exchange trading system within the trading time specified by the bank.
3、 Sources of funds for financial derivatives business
The company will use its own funds to carry out financial derivatives business for the purpose of hedging, which does not involve raising funds. 4、 Risk analysis
1. Market risk: Guangxi Liugong Machinery Co.Ltd(000528) shares and the financial derivatives trading business carried out by its holding subsidiaries are mainly hedging businesses related to its main business, and there is a risk of loss caused by changes in the price of financial derivatives due to market price fluctuations such as the underlying interest rate and exchange rate;
2. Liquidity risk: there is a risk of paying the price difference to the bank for the financial derivatives trading business that needs to be closed or extended in advance due to business changes, market changes and other reasons of the company;
3. Operational risk: when handling the forward foreign exchange settlement and sales business, if the operator fails to approve and operate according to the specified procedures, or fails to accurately, timely and completely record the financial derivatives business information, it may lead to the loss of financial derivatives trading business or loss of trading opportunities; Failure to fully understand the trading terms and legal information of derivatives will bring losses to the company's business personnel.
5、 Risk control measures
1. System improvement: the company has established the internal control system for derivatives investment, which clearly stipulates the scope of authorization, approval procedures, key points of operation, risk management and information disclosure of financial derivatives trading business. The articles of association has clearly stipulated the approval authority for carrying out financial derivatives transactions. The above system has made perfect provisions on the decision-making, authorization, risk management and operation of financial derivatives investment, and plays an important role in standardizing the investment and controlling risks of financial derivatives
Guangxi Liugong Machinery Co.Ltd(000528) board meeting proposal
To ensure the role.
2. Specially assigned person: the company's financial management department, legal affairs department, strategic operation Department, Board Secretariat and other relevant departments are responsible for the risk assessment of financial derivatives business before trading and analyzing the feasibility and necessity of trading. The financial management department of the company shall be responsible for the specific operation of the transaction, timely report the changes of risk assessment and put forward feasible emergency stop loss measures in case of major changes in the market.
3. Counterparty Management: when engaging in financial derivatives trading business, carefully select large domestic and foreign commercial banks with good strength to carry out financial derivatives business, closely track relevant laws and regulations and avoid possible legal risks. If necessary, professional institutions can be hired to analyze and compare the trading modes and counterparties of financial derivatives business.
4. Risk plan: establish a risk assessment model and monitoring mechanism, determine the risk response plan and decision-making mechanism in advance, assign special personnel to track the changes in the fair value of financial derivatives, timely evaluate the changes in the risk exposure of traded financial derivatives, and report regularly. When the market fluctuates violently or the risk increases, increase the reporting frequency to ensure that the risk plan can be started and implemented in time.
5. Routine inspection: the internal and external audit departments of the company regularly or irregularly check the business-related transaction process, approval procedures, handling records and accounting information.
6. Regular disclosure: complete the information disclosure in strict accordance with the relevant regulations and requirements of Shenzhen Stock Exchange. 6、 Accounting policies and accounting principles
The company's accounting policies and accounting principles related to financial derivatives transactions are implemented in accordance with the relevant provisions of 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 issued by the Ministry of finance of the people's Republic of China. The company will disclose the information related to the financial derivatives operation that has been carried out in the regular report.
7、 Conclusion of feasibility analysis of financial derivatives transactions carried out by the company
Guangxi Liugong Machinery Co.Ltd(000528) shares and holding subsidiaries carry out financial derivatives trading business around the company's actual business, with the purpose of effectively controlling the exchange rate fluctuation risk caused by foreign currency settlement in the process of production and operation, so as to enhance the company's financial stability, meet the needs of the company's business development, maintain and increase the value of the company's assets and safeguard the interests of the company and all shareholders.
Guangxi Liugong Machinery Co.Ltd(000528) board of directors
Guangxi Liugong Machinery Co.Ltd(000528) board meeting proposal
March 29, 2022
