Yifan Pharmaceutical Co.Ltd(002019)
Feasibility analysis report on foreign exchange derivatives trading
1、 Background of the company’s foreign exchange derivatives trading
With the in-depth promotion of the company’s global business layout, the foreign exchange assets held by the company and its subsidiaries increase, and the proportion of the company’s foreign exchange assets continues to rise. At the same time, with the development of the company’s business, the export business of its subsidiaries continues to grow, and a large amount of foreign currency settlement is also involved in the daily operation process. At present, the international foreign exchange market fluctuates violently, and the foreign exchange rate dominated by US dollars fluctuates. In order to improve the company’s ability to deal with the risk of foreign exchange fluctuation, better avoid and prevent the risk of foreign exchange rate fluctuation faced by the company, enhance the company’s financial stability, and prevent the adverse impact of exchange rate fluctuation on the company’s profits and shareholders’ equity, it is necessary for the company to appropriately carry out foreign exchange derivatives trading business according to specific conditions, so as to strengthen the company’s foreign exchange risk management.
2、 Overview of foreign exchange derivatives transactions carried out by the company
The foreign exchange derivatives transactions carried out by the company mainly include but are not limited to forward foreign exchange settlement and sales, foreign exchange options, interest rate swaps, foreign exchange swaps, etc., and the corresponding underlying assets include exchange rate, interest rate, currency, etc. The purpose of the company’s foreign exchange derivatives transactions is to lock in costs, avoid and prevent risks such as exchange rate and interest rate.
3、 Necessity and feasibility of the company’s foreign exchange derivatives trading
With the in-depth promotion of the company’s global business layout, the foreign exchange assets held by the company and its subsidiaries increase, and the proportion of the company’s foreign exchange assets continues to rise. At the same time, with the development of the company’s business, the export business of its subsidiaries continues to grow, and a large amount of foreign currency settlement is also involved in the daily operation process. At present, the international foreign exchange market fluctuates violently, and the foreign exchange rate dominated by US dollars fluctuates. In order to improve the ability of the company and its subsidiaries to deal with the risk of foreign exchange fluctuations, better avoid and prevent the risk of foreign exchange rate fluctuations faced by the company, enhance the company’s financial stability, and prevent the adverse impact of exchange rate fluctuations on the company’s profits and shareholders’ equity, the company and its subsidiaries must appropriately carry out foreign exchange derivatives trading business according to specific conditions, so as to strengthen the company’s foreign exchange risk management. The company carries out foreign exchange derivatives trading business for the purpose of hedging, which is used to lock in costs and avoid exchange rate risks. The company selects foreign exchange products closely related to the basic business, and these foreign exchange derivatives match with the basic business in terms of variety, scale, direction and term, so as to follow the company’s prudent and prudent risk management principles.
4、 Basic information of the company’s foreign exchange derivatives transactions
1. Amount of foreign exchange derivatives trading business to be carried out: foreign exchange derivatives trading business with a cumulative trading amount of no more than RMB 2 billion or other equivalent currencies at any time point.
2. Contract term: matched with the basic transaction term, generally no more than one year.
3. Counterparty: a financial institution approved by the regulatory authority and qualified for foreign exchange derivatives trading business.
4. Liquidity arrangement: foreign exchange hedging derivatives transactions are based on normal foreign exchange revenue and expenditure business, interest rate hedging derivatives transactions are based on actual foreign currency borrowings, and the transaction amount and transaction period are matched with the actual business needs.
5. Transaction types: interest rate swap, foreign exchange swap, foreign exchange forward, currency swap, call option, put option and above business combinations provided by financial institutions.
6. Source of funds and expected Occupied Funds: the company carries out hedging for foreign exchange derivatives trading business. According to the agreement signed with financial institutions, the company and its holding subsidiaries may need to pay a certain proportion of margin, which will be paid with the company’s own funds or offset by the credit line of financial institutions to the company.
7. Term and authorization: valid within one year from the date of deliberation and approval at the 23rd Meeting of the 7th board of directors, and authorize the chairman to approve and implement the above business within the quota.
5、 Risk analysis of the company’s foreign exchange derivatives trading
1. Market risk: the difference between the exchange rate and interest rate of foreign exchange derivatives trading contract and the actual exchange rate and interest rate on the maturity date will produce trading profits and losses; During the duration of foreign exchange derivatives, revaluation gains and losses will occur in each accounting period, and the cumulative value of revaluation gains and losses to the maturity date is equal to transaction gains and losses.
2. Liquidity risk: foreign exchange derivatives are based on the company’s foreign exchange assets and liabilities and match with the actual foreign exchange revenue and expenditure to ensure that there are sufficient funds for settlement at the time of delivery, or choose net delivery derivatives to reduce the capital demand on the maturity date.
3. Performance risk: the objects of the company’s foreign exchange derivatives transactions are banks with good credit and have established long-term business relations with the company, and the performance risk is low.
4. Customer default risk: the customer’s accounts receivable are overdue, and the payment cannot be recovered within the predicted recovery period, which will lead to delayed delivery and losses to the company.
5. Other risks: when conducting transactions, if the operators fail to conduct foreign exchange derivatives transactions according to the specified procedures or fail to fully understand the derivatives information, operational risks will be brought; If the terms of the transaction contract are not clear, it may face legal risks.
6、 Risk management measures taken by the company for foreign exchange derivatives transactions
1. Clarify the trading principle of foreign exchange derivatives: the trading principle of foreign exchange derivatives is to preserve the value, avoid the risks caused by exchange rate fluctuations to the greatest extent, and adjust the operation strategy in time in combination with the market conditions to improve the effect of hedging. 2. System construction: the company has established the securities investment and derivatives trading management system, which clearly stipulates the authorization scope, approval procedures, operation points, risk management and information disclosure of derivatives trading, which can effectively regulate the trading behavior of foreign exchange derivatives and control the trading risk of foreign exchange derivatives.
3. Product selection: before foreign exchange derivatives trading, conduct comparative analysis between multiple counterparties and multiple products, and select the financial derivatives most suitable for the company’s business background, strong liquidity and controllable risk to carry out business.
4. Counterparty Management: carefully select counterparties engaged in foreign exchange derivatives business. The company only carries out financial derivatives trading business with financial institutions such as legally qualified large commercial banks to avoid possible legal risks.
5. Specially assigned person: the company’s management representative, the company’s financial management department, the audit department and other relevant departments shall establish a special working group to be responsible for the risk assessment before the transaction of foreign exchange derivatives, analyze the feasibility and necessity of the transaction, 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.
7、 Feasibility analysis conclusion of foreign exchange derivatives transactions carried out by the company
The company’s foreign exchange derivatives trading is carried out around the company’s actual foreign exchange revenue and expenditure business, based on the normal business background, with the purpose of avoiding and preventing the risk of foreign exchange rate and interest rate fluctuation. It is out of the urgent needs of the company’s stable operation. The company has formulated the securities investment and derivatives trading management system and established a perfect internal control system. The targeted risk control measures planned by the company are also feasible. By carrying out foreign exchange derivatives transactions, the company can avoid and guard against exchange rate and interest rate risks to a certain extent, and lock the transaction costs and benefits at the future time point according to the company’s specific operation and investment business needs; Balance the company’s foreign currency assets and liabilities Yifan Pharmaceutical Co.Ltd(002019) board of directors
April 13, 2022
