Yantai Jereh Oilfield Services Group Co., Ltd.
Analysis Report on the Feasibility of the Company's Foreign Exchange Hedging Business
I. Background of the Company's Foreign Exchange Hedging Business
As Yantai Jereh Oilfield Services Group Co., Ltd. and its subsidiaries (hereinafter referred to as "the Company" or "Jereh") accelerate their internationalization, the Company has a significant volume of foreign currency settlement business. Concurrently, the expansion of overseas investment and overseas engineering projects has led to a sharp increase in foreign exchange rate and interest rate risks. In light of these circumstances, the Company proposes to engage in foreign exchange hedging to mitigate foreign exchange risks and prevent adverse impacts from significant exchange rate fluctuations.
II. Necessity and Feasibility of the Company's Foreign Exchange Hedging Business
Given the uncertainty of the macroeconomic environment and exchange rate fluctuations, the Company's foreign currency assets, foreign currency liabilities, and future foreign currency transactions are all subject to exchange rate fluctuation risks, which may have a certain impact on the Company's operations and profits. To prevent exchange rate and interest rate fluctuation risks and achieve stable operations, the Company proposes to engage in foreign exchange hedging.
All foreign exchange hedging activities of the Company are based on normal production and operation, supported by specific business operations, and aimed at hedging and preventing exchange rate or interest rate risks. The Company has established a specialized internal control and risk management system, which clearly defines the principles of company business operations, approval authority, internal review procedures, responsible departments and personnel, information segregation measures, internal risk reporting system, and risk handling procedures. The Company is therefore capable of conducting foreign exchange hedging.
The risk exposure managed by the Company through hedging activities is expected to be no higher than the total risk exposure arising from foreign exchange and other specific risks related to the Company's business operations. The types of foreign exchange derivatives and the managed risk exposure have a hedging relationship. The Company will conduct foreign exchange hedging with commercial banks approved by regulatory authorities and possessing foreign exchange hedging operating qualifications. This is considered from the perspective of locking in settlement costs, with contract terms matching the underlying transaction terms, to achieve the objective of locking in revenue or costs and hedging against exchange rate fluctuation risks.
III. Overview of Foreign Exchange Hedging Business
- Main Currencies and Business Types Involved The Company's foreign exchange hedging business is limited to currencies that are the same as the main settlement currencies used in the Company's production and operation. The main foreign currencies involved include USD, EUR, CAD, AED, KWD, JPY, CHF, IDR, KZT, RUB, BRL, PKR, etc. The foreign exchange hedging business undertaken by the Company includes forward foreign exchange settlement/purchase, foreign exchange swaps, cross-currency swaps, foreign currency options, interest rate swaps, interest rate options, and related combination products.