Citic Securities Company Limited(600030) about Hengyi Petrochemical Co.Ltd(000703)
Verification opinions on carrying out foreign exchange hedging business in 2022
Citic Securities Company Limited(600030) (hereinafter referred to as ” Citic Securities Company Limited(600030) “) as the sponsor of Hengyi Petrochemical Co.Ltd(000703) (hereinafter referred to as ” Hengyi Petrochemical Co.Ltd(000703) ” and “the company”) to publicly issue convertible corporate bonds, in accordance with the stock listing rules of Shenzhen Stock Exchange and 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 other relevant provisions, Prudential verification was conducted on Hengyi Petrochemical Co.Ltd(000703) foreign exchange hedging business in 2022. The specific verification is as follows:
1、 Overview of foreign exchange hedging business
The foreign exchange hedging business carried out by the company and its holding subsidiaries in 2022 is closely related to daily operations to avoid operational risks caused by exchange rate fluctuations.
(I) types of foreign exchange hedging business to be carried out
Under the financial market environment of two-way fluctuation of RMB exchange rate and marketization of interest rate, in order to effectively manage the exchange rate and interest rate risk faced by import and export business and corresponding derivative foreign currency loans, combined with fund management requirements and daily business needs, the company’s proposed foreign exchange hedging business includes the following scope: forward settlement and sales of foreign exchange, swap business of RMB and other foreign exchange Forward foreign exchange trading, foreign exchange swap, foreign exchange option, interest rate swap, interest rate option, currency swap.
(II) scale of foreign exchange hedging business to be carried out
As of the disclosure date of this verification opinion, the balance of relevant forward foreign exchange trading business of the company (including its holding subsidiaries) was USD 516 million, which did not exceed the original approved limit of no more than USD 1 billion.
According to the characteristics of the company’s business background such as the amount and turnover period of foreign exchange business such as raw material import and export business and foreign currency loans in 2022, based on the principle of prudent prediction, it is estimated that the balance of foreign exchange hedging business at any time point in 2022 will not exceed US $1 billion (other currencies are converted into US dollars at the current exchange rate), accounting for 26.56% of the company’s audited net assets in 2020. The authorization period is from the date of deliberation and approval of the second extraordinary general meeting of shareholders in 2022 to the date of convening the corresponding general meeting of shareholders in the next year. The above amount is recycled within the authorization period.
2、 Necessity of carrying out foreign exchange hedging business
With the rise of global uncertainty risk, the RMB exchange rate will enter a balanced two-way shock in 2022. The company has formed a pattern of domestic and foreign industrial linkage and international asset coordination. In order to maintain the stability and sustainable development of the company’s operation, it plans to avoid exchange rate and interest rate risks through foreign exchange hedging business, so as to reduce financial expenses and improve operating efficiency.
3、 Feasibility of carrying out foreign exchange hedging business
In view of the close relationship between foreign exchange hedging business and production and operation, the board of directors of the company, as the general decision-making body, authorizes the president to approve the daily foreign exchange hedging business transaction plan, and specifies that the chief financial officer and departments in charge are responsible for the formulation of the plan, the execution and accounting of the transaction order, the business department is responsible for the application and implementation of the plan, and the audit and legal department is responsible for the internal control risk management. Operate in strict accordance with the risk control, review procedures, follow-up management and other processes of foreign exchange hedging business clearly specified in the system formulated by the company. The company’s personnel involved in foreign exchange hedging business have fully understood the characteristics and risks of foreign exchange hedging business, and strictly implemented the business operation and risk management system of foreign exchange hedging business.
4、 Risk analysis of foreign exchange hedging business
1. Market risk: when the trend of exchange rate or interest rate is inconsistent with the company’s expectation, the cost expenditure of the company after locking the exchange rate or interest rate cost may exceed the cost expenditure when it is not locked, resulting in potential losses.
2. Internal control risk: foreign exchange hedging business is highly professional and complex, which may cause risks due to imperfect internal control mechanism.
3. Default risk of customers or suppliers: overdue accounts receivable from customers, failure to recover the payment within the predicted collection period, or delayed payment to suppliers will affect the company’s cash flow, which may make the actual cash flow unable to fully match the term or amount of the operated foreign exchange hedging business. 4. Collection forecast risk: the company’s business department usually forecasts payment and collection according to purchase orders, customer orders and expected orders. However, in the actual implementation process, suppliers or customers may adjust their own orders and forecasts, resulting in inaccurate collection forecast of the company, resulting in the risk of delayed delivery of the operated foreign exchange hedging business.
5. Legal risk: due to changes in relevant laws or counterparties’ violation of relevant legal systems, the contract may not be executed normally and bring losses to the company.
5、 Risk control measures taken by the company
1. The company has formulated relevant systems to stipulate that the company does not conduct foreign exchange transactions for the purpose of speculation, and all foreign exchange hedging businesses are based on normal production and operation, relying on specific business operations, for the purpose of avoiding and preventing exchange rate or interest rate risks. The system has made clear provisions on the company’s business operation principles, approval authority, internal audit process, responsible departments and responsible persons, information isolation measures, internal risk reporting system and risk handling procedures. The system meets the relevant requirements of regulatory authorities and the needs of actual operation. The risk control measures formulated are practical and effective.
2. The estimated amount of foreign exchange hedging transactions of the company and its holding subsidiaries in 2022 matches the amount of foreign exchange received and paid in recent years. The company has formulated risk prevention measures to strengthen the risk control of accounts receivable and strictly control overdue accounts receivable and bad debts.
3. The company’s financial management department, audit and legal department and business department, as relevant responsible departments, have clear management positioning and responsibilities, and have established a special foreign exchange management team to monitor foreign exchange fluctuations in real time; And the responsibility is assigned to people. Through hierarchical management, the risk of single person or separate department operation is fundamentally eliminated, and the response speed to the risk is also improved on the premise of effective risk control.
4. The company conducts foreign exchange hedging business with large commercial banks with legal qualifications, closely tracks laws and regulations in relevant fields, and avoids possible legal risks.
6、 Accounting policies and accounting principles
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 issued by the Ministry of finance, the company makes corresponding accounting and disclosure on the proposed foreign exchange hedging business, Reflect relevant items in the balance sheet and income statement.
7、 Approval procedure
(I) opinions of independent directors
The independent directors of the company believe that the foreign exchange hedging business to be carried out by the company for the purpose of avoiding the risk of exchange rate or interest rate fluctuation is closely related to the daily business needs of the company and complies with the provisions of relevant laws and regulations, and the company has formulated the management system of foreign exchange derivatives trading business to strengthen risk management and control. The deliberation and voting procedures of the proposal on carrying out foreign exchange hedging business in 2022 comply with the provisions of the company law, the stock listing rules of Shenzhen Stock Exchange and other relevant laws and regulations and the articles of association, and the voting results are legal and valid.
(II) opinions of the board of directors
Hengyi Petrochemical Co.Ltd(000703) (hereinafter referred to as ” Hengyi Petrochemical Co.Ltd(000703) ” or “the company”) convened the 16th meeting of the 11th board of directors on January 21, 2022. The meeting considered and adopted the proposal on carrying out foreign exchange hedging business in 2022 with 9 votes in favor, 0 against and 0 abstention.
According to the articles of association, the proposal needs to be submitted to the general meeting of shareholders for deliberation. This matter does not involve related party transactions, and there is no need to perform the decision-making procedures of related party transactions.
8、 Verification opinions of the recommendation institution
After verification, the recommendation institution believes that the company’s foreign exchange hedging business meets the needs of the company’s actual operation, and the business is conducive to preventing the adverse impact of large exchange rate fluctuations on the company’s production and operation. The company has formulated the management system for foreign exchange derivatives trading business according to relevant regulations and actual conditions, with corresponding risk control measures. The relevant matters have been deliberated and approved by the board of directors of the company, and the independent directors have issued clear consent opinions. Up to now, the company has fulfilled the necessary approval procedures.
In conclusion, the recommendation institution agrees the company to carry out the above foreign exchange hedging business.
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(there is no text on this page, which is the signature page of Citic Securities Company Limited(600030) verification opinions on Hengyi Petrochemical Co.Ltd(000703) carrying out foreign exchange hedging business in 2022)
Sponsor representative:
Mao Zongxuan, Xu Rui
Citic Securities Company Limited(600030) mm / DD / yy
