Securities code: 003816 securities abbreviation: Cgn Power Co.Ltd(003816) Announcement No.: 2022-007
Announcement on foreign exchange derivatives transactions carried out by subsidiaries of the company
The company and all members of the board of directors guarantee that the information disclosed is true, accurate and complete without false records, misleading statements or major omissions.
Cgn Power Co.Ltd(003816) (hereinafter referred to as “the company”) held the 13th meeting of the third board of directors on January 17, 2022, deliberated and adopted the proposal on approving subsidiaries of the company to carry out foreign exchange derivatives trading, It is agreed that the company’s subsidiaries Guangdong nuclear power joint venture Co., Ltd. (hereinafter referred to as the “joint venture”) and Taishan nuclear power joint venture Co., Ltd. (hereinafter referred to as the “Taishan company”) carry out foreign exchange derivatives transactions within the quota of no more than 1.4 billion yuan and 240 million euros respectively, and the transaction types are forward foreign exchange settlement hedging business and forward foreign exchange purchase hedging business respectively, The trading contracts shall be signed between January 18, 2022 and December 31, 2022, and the contract term shall not exceed one year.
According to the relevant provisions of Shenzhen Stock Exchange Stock Listing Rules, Shenzhen Stock Exchange self regulatory guidelines for listed companies No. 7 – transactions and connected transactions, the above matters do not constitute connected transactions, and this transaction does not need to be submitted to the general meeting of shareholders for approval.
1、 Background of foreign exchange derivatives trading
1. Joint venture
The electricity sales revenue of the joint venture company is mainly denominated in US dollars and received. The operating expenses are mainly in RMB. There is a surplus in US dollars and a gap in RMB. Therefore, the joint venture company has a certain demand for exchange of US dollars against RMB every year.
2. Taishan company
In November 2009, Taishan company signed an export credit re lending agreement with the Syndicate (with a term of 17 years). From 2022 to 2026, Taishan company needs to repay euro debt at a fixed time in accordance with the export credit re lending agreement. The electricity sales revenue of Taishan company is only RMB, and regular repayment of euro debt is required from 2022 to 2026. Therefore, Taishan company has a certain demand for foreign exchange purchase between RMB and euro every year.
Under the financial market environment of two-way fluctuation of RMB exchange rate, in order to effectively manage the exchange rate fluctuation risk of foreign currency debt, combined with the requirements of fund management, the joint venture company and Taishan company plan to carry out foreign exchange derivatives transactions for the purpose of hedging.
2、 Necessity and feasibility of foreign exchange derivatives trading
1. Joint venture
The joint venture company sells about 80% of its power generation to Hong Kong Nuclear Power Investment Co., Ltd. the power sales revenue is priced and collected in US dollars. However, the operating costs, nuclear fuel fees and other operating expenses of the joint venture company are mainly in RMB. The time and currency of income and expenditure do not match. The fluctuation of the exchange rate between US dollars and RMB will have an impact on the profits and cash flow of the joint venture company. In order to strengthen exchange rate risk management and prevent the adverse impact of exchange rate fluctuations on the operation of the joint venture company, it is necessary to appropriately carry out foreign exchange derivatives transactions.
2. Taishan company
The electricity sales revenue of Taishan company is only RMB, the daily operating expenses have euro debts with fixed repayment date, and the time of currency revenue and expenditure does not match the currency. The fluctuation of RMB against euro exchange rate will have an impact on the profits and cash flow of Taishan company. In order to strengthen exchange rate risk management and prevent the adverse impact of exchange rate fluctuations on the operation of Taishan company, it is necessary to appropriately carry out foreign exchange derivatives trading.
The derivatives trading business carried out by the joint venture company and Taishan company are closely related to the daily business needs. The transaction types are US dollar to RMB forward exchange settlement transaction and RMB to Euro forward exchange purchase transaction respectively. The transaction currencies are the main currencies in the market and the product liquidity is good. Both the joint venture company and Taishan company entrust China Guangdong Nuclear Power Finance Co., Ltd. (hereinafter referred to as the “finance company”) to carry out foreign exchange derivatives transactions in accordance with regulations. The finance company has equipped professionals to engage in foreign exchange derivatives transactions and formulated a standardized internal control system, which can effectively standardize foreign exchange derivatives transactions and control transaction risks. Therefore, it is feasible to carry out foreign exchange derivatives trading. 3、 Overview of proposed foreign exchange derivatives transactions
1. Joint venture company
The bookkeeping base currency of the joint venture company is USD, and the proposed foreign exchange derivatives transaction is the forward settlement and hedging business of USD against RMB, with the purpose of locking in costs and preventing exchange rate risks. The forward foreign exchange settlement hedging business carried out by the joint venture company is a simple foreign exchange derivative product closely related to the basic business, and these foreign exchange derivatives match with the basic business in terms of variety, scale, direction and term, which is in line with the company’s compliance, prudent and steady foreign exchange risk management principles. The main terms of the proposed foreign exchange derivatives transaction are as follows:
(1) Transaction type: forward foreign exchange settlement and hedging business.
(2) Contract term: matching the demand for RMB, no more than one year.
(3) Counterparty: banking financial institutions.
(4) Hedging scale and maximum net position scale at the time point: no more than RMB 1.4 billion.
(5) Capital occupation scale: ordinary forward transactions do not involve capital occupation scale.
(6) Liquidity arrangement: foreign exchange derivatives transactions are based on normal basic business and match the actual capital needs of the joint venture company, which will not affect the liquidity of the company and the joint venture company.
(7) Other terms: foreign exchange derivatives transactions mainly use the comprehensive bank credit line of the joint venture company, and the principal delivery is adopted at maturity. No handling charges will be incurred whether the joint venture company conducts derivative transactions with the bank or not.
2. Taishan company
The foreign exchange derivatives transaction to be carried out by Taishan company is the forward foreign exchange purchase hedging business of RMB against euro, with the purpose of locking in costs and preventing exchange rate risks. The forward foreign exchange purchase hedging business carried out by Taishan company is a simple foreign exchange derivative product closely related to the basic business, and these foreign exchange derivatives match with the basic business in terms of variety, scale, direction and term, which is in line with the company’s compliant, prudent and stable foreign exchange risk management principles. The main terms of the proposed foreign exchange derivatives transaction are as follows:
(1) Transaction type: forward foreign exchange purchase hedging business.
(2) Contract term: matching the maturity of euro debt, no more than one year.
(3) Counterparty: banking financial institutions.
(4) Hedging scale and maximum net position scale at the time point: no more than 240 million euros (principal and interest of Euro export credit due from 2022 to 2023).
(5) Capital occupation scale: ordinary forward transactions do not involve capital occupation scale.
(6) Liquidity arrangement: foreign exchange derivatives trading is based on normal basic business and matches the actual repayment demand of Taishan company, which will not affect the liquidity of the company and Taishan company.
(7) Other terms: the trading of foreign exchange derivatives mainly uses the bank comprehensive credit line of Taishan company, and the principal delivery is adopted at maturity. No matter whether tsnpc and the bank carry out derivatives transactions, no handling charges will be incurred.
4、 Risk analysis of foreign exchange derivatives trading
1. Market risk.
The exchange rate fluctuation is bidirectional. After the foreign exchange forward hedging transaction is carried out, the exchange rate locking price of the forward foreign exchange transaction may be lower or higher than the bookkeeping exchange rate of the company on the delivery date, resulting in exchange losses of the joint venture company or Taishan company.
2. Liquidity risk. When the foreign exchange derivatives contract expires, the joint venture company and Taishan company need to pay USD and RMB respectively according to the contract. If the joint venture company and Taishan company do not have enough USD and RMB funds for delivery at that time, there will be liquidity risk.
3. Performance risk. When the foreign exchange derivatives contract expires, the counterparty needs to pay RMB and euro to the joint venture company and Taishan company respectively according to the contract. If the counterparty fails to pay as agreed, the joint venture company and Taishan company will face performance risk.
4. Other risks. During the transaction, if the terms of the transaction contract are not clear, it may face legal risks.
5、 Risk control measures for foreign exchange derivatives trading
1. Market risk control measures. The foreign exchange derivatives transactions between the joint venture company and Taishan company are aimed at reducing the impact of exchange rate fluctuations on the company, and there is no risk speculation. The trading quota of foreign exchange derivatives between the joint venture company and Taishan company shall not exceed the upper limit of the authorized quota approved by the board of directors, and the market risk is controllable.
2. Liquidity risk control measures. The proposed foreign exchange derivatives transactions are based on the US dollar income of the joint venture company and the RMB income of Taishan company. Their income is stable and controllable, which can ensure that they have sufficient funds for clearing at the time of delivery, and the liquidity risk is low.
3. Performance risk control measures. The counterparties of the joint venture company and Taishan company in foreign exchange derivatives transactions are financial institutions with good credit and have established long-term business relations with the company, and the performance risk is low.
4. Other risk control measures. The joint venture company and Taishan company will carefully review the terms of the contract signed with the counterparty and strictly implement the risk management system to prevent legal risks.
The company, the joint venture company and Taishan company will continue to track the changes in the open market price or fair value of foreign exchange derivatives, timely assess the changes in the risk exposure of foreign exchange derivatives transactions, regularly report to the company’s management, timely report any abnormalities, prompt risks and implement emergency measures.
6、 Fair value analysis and accounting policies for derivatives transactions
The foreign exchange derivatives trading business between the joint venture company and Taishan company shall be recognized and measured at fair value, and the changes in fair value shall be included in the current profits and losses.
The company conducts corresponding accounting and disclosure of foreign exchange derivatives business in accordance with the relevant provisions and guidelines of accounting standards for Business Enterprises No. 22 – recognition and measurement of financial instruments, accounting standards for Business Enterprises No. 24 – hedging and accounting standards for Business Enterprises No. 37 – presentation of financial instruments.
7、 Opinions of independent directors
The foreign exchange derivatives transactions of the company’s subsidiaries, the joint venture company and Taishan company are carried out around their actual foreign exchange revenue and expenditure business. This transaction is based on the normal business background and aims to reduce the risk of foreign exchange rate fluctuation. There is no risk speculation and does not harm the interests of the company and shareholders, especially the interests of minority shareholders. The company has formulated the provisions on the management of derivatives transactions of joint stock companies, which is conducive to strengthening the risk management and control of foreign exchange derivatives transactions. The joint venture company and Taishan company will carry out foreign exchange derivatives transactions and risk control within the limit approved by the board of directors in strict accordance with the above provisions and internal control procedures. The deliberation and voting procedures of the proposal comply with relevant laws and regulations. Therefore, we agree that the joint venture company and Taishan company respectively carry out foreign exchange derivatives trading within the limit approved by the board of directors.
8、 Documents for future reference
1. Resolutions of the 13th meeting of the third board of directors of the company;
2. Independent opinions of independent directors on foreign exchange derivatives transactions carried out by subsidiaries;
3. Cgn Power Co.Ltd(003816) feasibility analysis report on foreign exchange derivatives trading by its subsidiary Guangdong nuclear power joint venture Co., Ltd;
4. Cgn Power Co.Ltd(003816) feasibility analysis report on foreign exchange derivatives trading by its subsidiary Taishan nuclear power joint venture Co., Ltd.
Cgn Power Co.Ltd(003816) board of directors January 17, 2022
