[E-Daily Marketin Hur Jieun Reporter] Fundraising through Price Return Swaps (PRS) is rapidly spreading beyond large conglomerates to KOSDAQ-listed companies. As this method has emerged as a means to secure large amounts of capital by using stakes in subsidiaries as underlying assets, KOSDAQ companies pursuing aggressive mergers and acquisitions (M&A) are jumping on the PRS bandwagon one after another.

According to the financial investment industry on the 2nd, semiconductor materials company MiCo Ltd.(059090)signed a PRS contract with MIRAE ASSET SECURITIES on the 28th of last month, using a 15% stake (150,000 shares) in its subsidiary HPS (HYUNDAI INDUSTRIAL CO.,LTD. Power Systems) as the underlying asset. Through this, the company plans to raise 31 billion won. MiCo Ltd. acquired HPS for approximately 73 billion won last July, securing more than a 69% stake; this move marks its first attempt to raise additional funds using a portion of that stake just one year and five months after the acquisition.

MiCo Ltd. has also been pursuing an aggressive M&A strategy, having acquired PlanTech (formerly POSCO PlanTech) from Yuamco for 154.2 billion won in August of this year. It appears that the company has chosen the PRS as a means to “secure ammunition” to ensure it does not miss out on future acquisition opportunities, given its series of large-scale acquisitions in a short period.

A PRS is a derivative product in which a company sells a stake to a securities firm and then settles with the firm only on the capital gains or losses resulting from fluctuations in the stock price. From the company’s perspective, this allows it to reduce volatility by transferring shares to a securities firm rather than selling them on the market, while also reaping profits if the stock price rises. Securities firms can hedge against the risk of losses in addition to earning commissions. Contracts are often structured using holdings in subsidiaries as the underlying asset.

Among KOSDAQ companies, ECOPRO CO., LTD ( ECOPRO CO., LTD(086520)) is noted for its active use of PRS. ECOPRO CO., LTD has entered into PRS contracts worth up to 800 billion won with six securities firms—MIRAE ASSET SECURITIES, Korea Investment, KB, Shinhan Investment, DaishinSecurities, and Meritz Securities—using approximately 6.73 million shares of ECOPRO BM CO., LTD.(247540) it holds as the underlying asset. The contracts have a two-year term with an annual commission rate in the 5% range. These funds are expected to be used to finance ECOPRO CO., LTD’s Phase 2 investment in Indonesia.

Until now, PRS has been considered the exclusive domain of large conglomerates that own numerous subsidiaries to serve as underlying assets. In fact, major conglomerates such as SK Innovation, LGCHEM, LOTTE CHEMICAL CORPORATION, and E-MART Co., Ltd. have raised funds using PRS. However, with KOSDAQ-listed companies like ECOPRO CO., LTD. and MiCo Ltd.—which are pursuing growth investments and M&A—successively adopting PRS, there is a growing view that this structured finance technique is spreading to mid-sized and small listed companies.

Nevertheless, controversy continues over whether PRS should be treated as an asset or a liability for accounting purposes, and it remains a high-risk product where both companies and securities firms stand to incur losses if stock prices fall. As KOSDAQ companies follow in the footsteps of large conglomerates and adopt PRS one after another, the possibility of tighter regulations—including revisions to accounting and disclosure standards by financial authorities and the establishment of investor protection measures—is being cited as a key variable.

An official from the financial investment industry explained, “As the number of companies raising funds through PRS increases, this could act as a potential flashpoint,” adding, “There is a possibility that the authorities will step up their monitoring.”