Shenzhen Sinovac Pharmaceutical Co., Ltd. Feasibility Analysis Report on Increasing the Transaction Limit for Hedging Financial Derivative Business
To further effectively hedge against foreign exchange market risks and mitigate the adverse impact of significant exchange rate fluctuations, Shenzhen Sinovac Pharmaceutical Co., Ltd. (hereinafter referred to as "the Company") proposes to increase the transaction limit for its hedging financial derivative business. A feasibility analysis is hereby provided as follows:
I. Necessity of Increasing the Transaction Limit for Hedging Financial Derivative Business
Affected by the complex and volatile international economic environment, the international foreign exchange market has recently experienced significant fluctuations. The complexity and uncertainty of exchange rate trends have further increased, leading to wider fluctuations in exchange rates and interest rates, and significantly increasing foreign exchange market risks. The current hedging limit is expected to be insufficient to fully cover the exchange rate risks that the Company may face in the future, and cannot meet the growing demand for risk hedging. To further effectively hedge against exchange rate fluctuation risks, enhance the Company's foreign exchange risk management capabilities, and reasonably control exchange rate gain and loss risks, in conjunction with fund management requirements and daily operational needs, the Company proposes to increase the transaction limit for foreign exchange hedging business on the basis of the original approved limit.
The primary purpose of the Company engaging in financial derivative transactions is to fully utilize foreign exchange tools to reduce the impact of exchange rate fluctuations on the Company, allowing the Company to focus on production and operations. The Company does not engage in speculative or arbitrage trading.
II. Overview of the Increased Transaction Limit for Hedging Financial Derivative Business
(I) Overview The hedging financial derivative business that the Company proposes to engage in includes, but is not limited to, the following: forward foreign exchange settlement and sales of USD or other currencies, foreign exchange swap business, currency swap business, interest rate swap business, and foreign exchange option business, or a combination of the above products. The underlying assets of financial derivatives include exchange rates, interest rates, currencies, or a combination of these assets; settlement can be made either by physical delivery upon maturity or by net settlement.
The financial derivative transactions undertaken by the Company are aimed at locking in costs and hedging against exchange rate and interest rate risks. The types of transactions are simple financial derivative products closely related to the Company's underlying business. These financial derivative products are matched with the underlying business in terms of type, scale, direction, and term, in accordance with the Company's prudent and stable risk management principles.
(II) Transaction Limit The transaction limit at any point in time will be increased from within USD 40 million (or equivalent in other currencies) to within USD 700 million (or equivalent in other currencies). This limit can be used jointly and on a revolving basis by the Company and its subsidiaries included in the consolidated financial statements. The usage period of the relevant limit shall not exceed 12 months, and the transaction amount at any point in time within the period shall not exceed the derivative transaction limit.
The upper limit of the estimated margin and premium to be used (including the value of collateral provided for transactions, estimated credit lines from financial institutions, and margins reserved for emergency measures, etc.) shall not exceed USD 35 million (or equivalent in other currencies).
(III) Investment Term The validity period is one year from the date of approval by the Company's 2025 Annual General Meeting of Shareholders.
III. Main Terms of the Company's Hedging Financial Derivative Business