[Edaily Marketin Reporter Hur Jieun ] KoreaZinc(010130)KoreaZinc is introducing a Price Return Swap (PRS) structure for the first time since its founding to finance a renewable energy and battery energy storage system (BESS) project in Australia. This marks the first time KoreaZinc, which has traditionally relied on methods such as rights offerings and bond issuances, has turned to a PRS—a structure that exposes the company to stock price volatility.
According to the Financial Supervisory Service’s electronic disclosure system on the 21st, Richmond Valley Energy Reserve Holdings, a KoreaZinc subsidiary in Australia, is conducting a third-party private placement worth 400.5 billion won for “New South Wales Solar No. 1,” a special purpose company (SPC) established by Meritz Securities.
On the surface, this appears to be a simple capital increase in which KoreaZinc’s Australian subsidiary issues new shares to the Meritz SPC to raise funds for facilities. However, the core of this deal is the PRS agreement between KoreaZinc and Meritz. Under this structure, in exchange for the Meritz SPC participating in the Australian subsidiary’s capital increase by purchasing shares, KoreaZinc’s headquarters enters into a separate derivative contract to settle Meritz’s profits and losses using these shares as the underlying asset.
A PRS is a derivative product that settles gains or losses based on fluctuations in the price of the underlying asset. On the surface, it is classified as capital raising, which has the effect of not immediately increasing the debt-to-equity ratio on the financial statements. However, if the stock price falls, KoreaZinc must compensate Meritz for the difference and pay annual costs based on the contract interest rate. The investment banking (IB) industry classifies this as a de facto contingent liability.
The PRS premium (interest rate) set by KoreaZinc with Meritz is in the mid-5% range annually. Typically, PRS interest rates are set higher than those of general corporate bonds: in the low to mid-4% range for high-credit-quality large corporations, and in the 5–6% range for general large corporations and mid-sized companies. SK On and LGCHEM,LTD, which entered into PRS agreements last year, were charged rates in the 4% range, while ECOPRO CO., LTD was charged rates in the 5% range and LOTTE CHEMICAL CORPORATION in the 6% range.
The financial partnership with Meritz Financial, which serves as the primary source of funding, also appears to be growing even stronger. Meritz began by issuing 1 trillion won in private placement bonds in October 2024 to provide funding for KoreaZinc’s counter-takeover bid against MBK and Youngpoong. It then acquired a 2.01% friendly stake held by Chairman Choi’s family for approximately 514.4 billion won last April, and is now strengthening its ties by finalizing this PRS deal for the Australian project.
An industry insider explained, “PRS has primarily been a financing tool used by the petrochemical and secondary battery industries—which face funding difficulties—as well as large conglomerates pursuing business rebalancing,” adding, “It appears that KoreaZinc is attempting a new form of financing as it undertakes large-scale overseas investments.”
