About Jiangsu Eastern Shenghong Co.Ltd(000301)
Verification opinions on commodity hedging business in 2022
Huatai United Securities Co., Ltd. (hereinafter referred to as “sponsor” and “Huatai united”) is the sponsor of Jiangsu Eastern Shenghong Co.Ltd(000301) (hereinafter referred to as ” Jiangsu Eastern Shenghong Co.Ltd(000301) “, “company” and “listed company”) for public issuance of convertible corporate bonds in 2021, In accordance with the provisions of relevant laws, regulations and normative documents such as the measures for the administration of securities issuance and listing recommendation business, the stock listing rules of Shenzhen Stock Exchange, the self regulatory guidelines for listed companies of Shenzhen Stock Exchange No. 1 – standardized operation of listed companies on the main board, and the guidance for information disclosure of listed companies of Shenzhen Stock Exchange No. 6 – recommendation business, The commodity hedging business carried out in Jiangsu Eastern Shenghong Co.Ltd(000301) 2022 was reviewed and verified. The details are as follows:
1、 Overview of investment
1. Purpose of investment
The company is mainly engaged in the production and sales of petroleum and chemical products and chemical fiber products, and its price is greatly affected by international and Chinese prices. In order to avoid the adverse impact of the sharp fluctuation of crude oil and product prices on the company’s operation, combined with the production and operation plan, the company plans to carry out commodity hedging business, make full use of the function of futures market, reduce production and operation risks, improve the enterprise’s operation level and ensure the healthy and sustainable operation of the enterprise.
2. Investment amount
The total margin balance at any time point during the investment period (including the relevant amount of reinvestment of the income of the above investment, excluding the full margin paid for the delivery of the current position) shall not exceed RMB 2 billion (other currencies are converted into RMB at the current exchange rate).
3. Investment mode
The chairman of the company shall organize and establish a leading group as the decision-making body for managing commodity hedging business, which shall operate in accordance with the derivatives trading management system and relevant business rules and processes formulated by the company.
Commodity hedging transactions match the company’s production and operation, and the types of investment are trading contracts for commodities related to the industrial chain such as crude oil, naphtha, refined oil, PX, PTA, Meg, methanol, liquefied petroleum gas (LPG), styrene, etc. The trading places and varieties chosen for investment are open and transparent, with active transactions and strong liquidity.
4. Investment period
The investment period starts from the date of deliberation and approval at the first extraordinary general meeting of shareholders in 2022 to the date of holding the annual general meeting of shareholders in 2022.
5. Source of funds
The source of funds used for this investment is the company’s own funds, and there is no use of raised funds or bank credit funds.
2、 Review procedure
On January 12, 2022, the 42nd meeting of the 8th board of directors of the company deliberated and adopted the proposal on developing commodity hedging business. According to the production and operation plan and based on the principle of prudence, the company and its subsidiaries are expected to carry out commodity hedging business in 2022, The total margin balance at any time point during the investment period (including the relevant amount of reinvestment of the income of the above investment, excluding the full margin paid for the delivery of the current position) shall not exceed RMB 2 billion (other currencies are converted into RMB at the current exchange rate). The investment period starts from the date of deliberation and approval at the first extraordinary general meeting of shareholders in 2022 to the date of holding the annual general meeting of shareholders in 2022. The independent directors of the company have expressed their independent opinions on this matter.
This matter needs to be submitted to the general meeting of shareholders for deliberation. This item does not involve related party transactions.
3、 Investment risk analysis and risk control measures
1. Investment risk analysis
The company does not carry out commodity hedging business for the purpose of speculation, and the investment varieties are only limited to the products related to the company’s production and operation or the required raw materials, so as to avoid the adverse impact of price fluctuation on the company’s operation and reduce the operation risk, but there will be certain risks at the same time. The main risks are as follows:
(1) Market risk: when the market changes sharply, the company may not be able to fully lock the price of crude oil or products, resulting in losses.
(2) Liquidity risk: the company formulates relevant business rules and processes and issues operation instructions within the specified authority. If the market fluctuates too much, it may lead to actual losses caused by forced closing of positions due to lack of time to supplement margin.
(3) Operational risk: due to the strong professionalism and complexity of futures and forward trading, there may be accidental losses due to defects in information system or internal control.
(4) Credit risk: when the price fluctuates significantly against the counterparty, the counterparty may violate the relevant provisions of the contract, cancel the contract and cause losses to the company.
(5) Legal risk: due to changes in relevant legal systems or the counterparty’s violation of relevant legal systems, the contract may not be executed normally and bring losses to the company.
2. Risk control measures
(1) Carry out commodity hedging business for the purpose of avoiding commodity price risk, match the hedging business with the company’s business, and hedge the price fluctuation risk of raw materials and products.
(2) Formulate and strictly implement relevant business rules and processes, and carry out risk control through authorization, post containment and internal audit.
(3) Set up qualified computer systems and related facilities to ensure the normal operation of transactions. In case of failure, corresponding treatment measures shall be taken in time to reduce losses.
(4) Strengthen professional ethics education and business training, improve the comprehensive quality of relevant personnel, and form efficient risk handling procedures.
4、 Impact of investment on the company
The company’s commodity hedging business is to achieve stable operation, improve the company’s ability to resist the risk of market price fluctuation, will not have an adverse impact on the company’s financial and operating conditions, and is in the interests of the company and all shareholders.
The company will conduct corresponding accounting treatment on the hedging business and reflect the relevant items of the financial statements in accordance with the relevant provisions and guidelines of the Ministry of finance, such as the accounting standards for Business Enterprises No. 22 – recognition and measurement of financial instruments, the accounting standards for Business Enterprises No. 24 – hedge accounting, and the accounting standards for Business Enterprises No. 37 – presentation of financial instruments.
5、 Opinions of independent directors
1. The convening and convening of this meeting and the deliberation and voting procedures of relevant proposals comply with the provisions of relevant laws, administrative regulations and the articles of association.
2. The company has established and improved relevant internal control systems, implemented risk prevention measures and controlled derivatives investment risks by strengthening internal management; The company’s commodity hedging business meets the needs of actual operation, can avoid the risk of crude oil and product price fluctuation to a certain extent, reduce production and operation risk, and does not damage the interests of the company and all shareholders, especially minority shareholders.
We agree to the company’s commodity hedging business and submit the proposal to the general meeting of shareholders for deliberation. 6、 Verification opinions of the recommendation institution
After verification, the sponsor believes that the company’s commodity hedging business meets the needs of actual operation, can avoid the risk of price fluctuation of raw materials and products to a certain extent, reduce the production and operation risk, and there is no situation that damages the interests of the company and all shareholders, especially small and medium-sized shareholders. The company shall operate in strict accordance with the guidelines for self discipline supervision of listed companies of Shenzhen Stock Exchange No. 1 – standardized operation of listed companies on the main board and the company’s derivatives trading management system, and strictly control the business risk of hedging from the perspective of system. The matter has been deliberated and approved at the 42nd meeting of the 8th board of directors of the company. The independent directors of the company have expressed their independent opinions on the matter, which needs to be deliberated and approved by the general meeting of shareholders of the company. The recommendation institution has no objection to the company’s commodity hedging business this time.
(there is no text below, which is the signature and seal page of the verification opinions of Huatai United Securities Co., Ltd. on carrying out commodity hedging business in Jiangsu Eastern Shenghong Co.Ltd(000301) 2022) sponsor representative:
Jiang Haiyang, Li Yongwei
Huatai United Securities Co., Ltd. mm / DD / 2022
