According to the Financial Supervisory Service’s electronic disclosure system on the 7th, POSCO Holdings announced that it held a board meeting that day and resolved to dispose of 36,434,963 shares of POSCO INTERNATIONAL at 55,400 won per share and 23,385,917 shares of POSCO DX at 20,600 won per share, and to enter into a PRS contract using these shares as the underlying assets. The PRS contract term is three years, and the scheduled disposal date is September 7.
POSCO Holdings has structured the transaction not as a simple sale of its subsidiaries’ shares, but as a way to raise funds through a PRS contract following the sale. A PRS is a derivative product that settles gains or losses based on fluctuations in the share price of the underlying asset. Having securities firms and others acquire large blocks of shares helps mitigate market impact, and since it is classified as capital raising on the surface, it has the effect of not increasing the debt-to-equity ratio on the financial statements.
However, if the stock price falls, the company must compensate the securities firm for the difference and pay annual fees based on the contract interest rate. For these reasons, the investment banking (IB) industry tends to classify this as a de facto contingent liability.
Generally, PRS interest rates are set higher than those of regular corporate bonds. For high-quality large conglomerates, rates are set in the low to mid-4% range, while for general large conglomerates and mid-sized companies, they range from 5% to 6%. Among major companies that have entered into PRS agreements from last year through this year, SK On and LGCHEM,LTD were subject to rates in the 4% range, ECOPRO CO., LTD and KoreaZinc in the 5% range, and LOTTE CHEMICAL CORPORATION in the 6% range.
NH INVESTMENT & SECURITIES was selected as POSCO’s PRS partner. NH INVESTMENT & SECURITIES is participating as a key partner in both the POSCO INTERNATIONAL and POSCO DX PRS agreements. Specifically, it was disclosed that five firms, including NH INVESTMENT & SECURITIES, are participating in the POSCO INTERNATIONAL agreement, while four firms, including NH INVESTMENT & SECURITIES, are participating in the POSCO DX agreement.
A POSCO official explained, “The purpose is to secure strategic investment funds to eliminate the holding company discount and enhance corporate value,” adding, “We disposed of a portion of our common stock and entered into PRS agreements with the counterparties.”
