China International Capital Corporation Limited(601995)
About wankai New Material Co., Ltd
Verification opinions on increasing the amount of forward foreign exchange settlement and sales business
China International Capital Corporation Limited(601995) (hereinafter referred to as ” China International Capital Corporation Limited(601995) ” or “sponsor”) as a sponsor of wankai new materials Co., Ltd. (hereinafter referred to as “wankai new materials” or “company”) for initial public offering and listing on GEM, In accordance with the relevant provisions of the measures for the administration of securities issuance and listing recommendation business, 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, wankai Xincai has carefully and prudently verified the increase of the amount of long-term foreign exchange settlement and sales business. The specific circumstances are as follows:
1、 Overview of carrying out forward foreign exchange settlement and sales business
1. Transaction purpose: due to the development needs of the company’s business, the payment for overseas procurement of the company is mainly settled in US dollars. In view of the increasing volatility of the foreign exchange market, in order to reduce the impact of exchange rate fluctuations on the company’s performance and prevent the adverse impact of large exchange rate fluctuations on the company’s cost control and operating performance, the company plans to carry out long-term foreign exchange settlement and sales business with banks and other financial institutions under the condition of ensuring the daily working capital demand. The long-term settlement and sales of Foreign Exchange carried out by the company are aimed at locking costs, avoiding and preventing exchange rate risks, and will not affect the company’s main business. Since April this year, the RMB exchange rate against the US dollar has increased significantly, the US dollar continues to appreciate, and the risk of bilateral exchange rate fluctuations has increased significantly. This increase in the amount of long-term foreign exchange settlement and sales business is matched with the company’s continuous expansion of the scale of its main export business. It can lock the transaction income or cost at the future time point and realize the asset preservation for the purpose of avoiding risks. To sum up, this increase in the business quota of forward foreign exchange settlement and sales can effectively reduce the risk of exchange rate fluctuation and timely lock part of foreign exchange earnings, which is necessary and feasible.
2. Transaction amount: the 11th meeting of the first board of directors held on April 28, 2022 considered and approved the proposal on carrying out forward foreign exchange settlement and sales business, and agreed that the company and banks and other financial institutions carry out forward foreign exchange settlement and sales business with a total amount of no more than US $50 million (or equivalent in other currencies); According to the actual business needs, the company held the 12th meeting of the first board of directors on May 20, 2022, deliberated and approved the proposal on increasing the amount of long-term foreign exchange settlement and sales business, and agreed to increase the amount of long-term foreign exchange settlement and sales business by US $50 million on the original basis, that is, the total amount of long-term foreign exchange settlement and sales business of the company shall not exceed US $100 million (or equivalent in other currencies), It shall be valid from the date of approval by the board of directors to the date of convening the board of directors or shareholders’ meeting to consider the amount of foreign exchange settlement and sales for the next year, but not later than June 30, 2023. The transaction amount can be recycled within the above limit range and period.
3. Business types and counterparties: the forward foreign exchange settlement and sales business carried out by the company is limited to the same currency as the main settlement currency used by the company for production and operation, and the forward foreign exchange settlement and sales business with the delivery period consistent with the predicted collection period and the amount matching the predicted collection amount. The counterparties are banks and other financial institutions with foreign exchange derivatives trading business qualification approved by the State Administration of foreign exchange and the people’s Bank of China.
4. Investment term: valid from the date of approval by the board of directors to the date of convening the board of directors or shareholders’ meeting to consider the amount of foreign exchange settlement and sales for the next year, but no later than June 30, 2023.
5. Source of funds: all the funds of the forward foreign exchange settlement and sales transactions to be carried out by the company are the company’s own funds.
2、 Risk analysis of carrying out forward foreign exchange settlement and sales business
The company’s forward foreign exchange settlement and sales business follows the prudent principle and does not carry out foreign exchange transactions for the purpose of speculation. All forward foreign exchange settlement and sales business is based on normal production and operation, relying on specific business operations, and aiming at avoiding and preventing exchange rate risks. However, there are certain risks in the forward settlement and sales of foreign exchange:
1. Exchange rate fluctuation risk: when the foreign exchange rate fluctuates greatly, the company judges that the sharp fluctuation direction of the exchange rate is inconsistent with the direction of the forward foreign exchange settlement and sales contract, which will cause exchange losses; If the exchange rate fluctuates in the future, a large deviation from the forward foreign exchange settlement and sales contract will also cause exchange losses.
2. Internal control risk: the long-term foreign exchange settlement and sales business is highly professional and complex, which may cause risks due to the imperfect internal control mechanism.
3. Transaction default risk: if the counterparty of the forward foreign exchange settlement and sales business defaults and fails to pay the company’s profit from the forward foreign exchange settlement and sales transaction as agreed, it is unable to hedge the company’s actual exchange loss, which will cause the company’s loss.
4. Collection and payment forecast risk: the company forecasts collection and payment according to sales orders and purchase orders. In the actual implementation process, customers or suppliers may adjust orders, resulting in inaccurate collection and payment forecasts and delivery risk. 3、 Risk control measures taken by the company
1. In order to avoid the risk of sharp fluctuation of exchange rate, the company will strengthen the research and analysis of exchange rate, pay real-time attention to the changes of international market environment, timely adjust business strategy and avoid exchange loss to the greatest extent.
2. The company has formulated the management system for forward settlement and sale of foreign exchange and foreign exchange option trading, established a strict and effective risk management system, and used the risk control measures before, during and after the event to prevent, discover and reduce various risks. The system meets the relevant requirements of the regulatory authorities, meets the needs of practical operation, and the risk control measures formulated are practical and effective.
3. In order to avoid internal control risks, the financial department, legal department and Audit Department of the company, as relevant responsible departments, have clear management positioning and responsibilities, form a supervision mechanism through hierarchical management, eliminate the risks of single person or separate department operation from the system, and improve the response speed of risks with effective risk control measures.
4. In order to control the risk of transaction default, the company only carries out forward foreign exchange settlement and sales business with financial institutions approved by the State Administration of foreign exchange and the people’s Bank of China and qualified for forward foreign exchange settlement and sales and foreign exchange option trading, and pays close attention to relevant policies and regulations at home and abroad to ensure the legitimacy of transaction management.
5. The company’s forward foreign exchange settlement and sales business must be based on the careful prediction of the company’s foreign currency collection (payment). The delivery date of the forward foreign exchange settlement and sales business must match the foreign currency collection, deposit time or foreign currency payment time predicted by the company. The foreign currency amount of the transaction contract shall not exceed the predicted amount of foreign currency collection or foreign currency payment.
6. The internal control of the company will regularly review the actual operation, capital use and profit and loss of the long-term foreign exchange settlement and sales business.
4、 Impact of carrying out forward foreign exchange settlement and sales business on the company
At present, there is great uncertainty in global economic and trade relations and economic development trend, and the foreign exchange rate fluctuates greatly. Carrying out this business is conducive to the company to avoid the risk of exchange rate fluctuation, minimize the adverse impact of the company’s foreign currency exchange rate changes in 2022, and timely lock part of the exchange earnings. This business is to meet the company’s own actual business needs and is in line with the company’s overall interests and long-term development.
5、 Review procedures performed by the company
The company’s increase in the amount of long-term foreign exchange settlement and sales business has been deliberated and approved at the 12th meeting of the first board of directors and the 9th meeting of the first board of supervisors. The independent directors of the company reviewed the above matters and expressed their independent opinions with explicit consent.
6、 Verification opinions of the recommendation institution
After verification, the recommendation institution believes that:
The company’s increase in the amount of long-term foreign exchange settlement and sales business is based on daily business, follows the principle of hedging and does not engage in speculative arbitrage transactions. The company’s relevant business management system is relatively complete and has corresponding risk control measures. The above matters have been deliberated and approved by the board of directors and the board of supervisors of the company, and the independent directors have expressed their consent on the matter, which is in line with relevant provisions 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 companies listed on GEM, etc.
In conclusion, the recommendation institution has no objection to the company’s increase in the amount of long-term foreign exchange settlement and sales business.
