[Edaily Marketin KIM YEON-SEO Hur Jieun Reporter] Price Return Swaps (PRS) are establishing themselves as a new funding method for large conglomerates, moving beyond their original role as a means for companies facing poor business conditions to secure liquidity. This shift comes as the advantages of using stakes in affiliates to secure large amounts of cash while retaining management control and economic interests tied to stock price fluctuations have come to the fore.

According to the financial investment industry on the 12th, major conglomerates such as POSCO, Hanwha, and SK have successively pursued PRS transactions this year using shares in their affiliates as underlying assets. PRS was primarily used by companies facing increased financial burdens due to deteriorating business conditions to improve their financial structures. Recently, however, its scope of use appears to be expanding as a strategic funding tool for conglomerates to secure investment capital for new businesses and optimize their asset portfolios.

A PRS is an over-the-counter (OTC) derivative in which a company transfers shares or other assets it holds to a counterparty (a financial institution) and uses these as the underlying asset to settle price fluctuations at the end of the contract. If the price of the underlying asset falls below the reference price, the company pays the difference to the counterparty; conversely, if it rises, the company receives the profit. From the company’s perspective, since it is not recognized as a liability on the balance sheet, it can secure liquidity quickly while reducing the burden on its financial statements.

From POSCO to Hanwha and SK… Securing “Cash” Using Affiliated Company Shares

POSCO Holdings will raise approximately 2.5 trillion won this September through a PRS transaction utilizing its stakes in POSCO INTERNATIONAL and POSCO DX. The company will dispose of 36,434,963 shares of POSCO INTERNATIONAL (valued at approximately 2.0184 trillion won) and 23,385,917 shares of POSCO DX (valued at approximately 481.7 billion won), respectively, and enter into a three-year PRS contract using these shares as underlying assets. The scheduled disposal date is the 7th of next month.

POSCO Holdings plans to enhance shareholder value by using the raised funds as strategic investment capital to eliminate the holding company discount and boost corporate value. This is an example of a company with a weak financial structure going beyond merely raising funds to secure new investment capacity by leveraging its stakes in affiliates.

KoreaZinc will raise approximately 400.5 billion won by combining PRS with a paid-in capital increase at an overseas affiliate to pursue large-scale solar power and battery energy storage system (BESS) projects. The funds raised will be invested in a project in the Richmond Valley region of New South Wales (NSW), Australia. KoreaZinc plans to construct a 200 MW solar power plant and a long-duration BESS with a capacity of 275 MW and 2,200 MWh. According to the disclosure, construction is scheduled to begin in October of this year, with commercial operation set to start in January 2029.

KoreaZinc’s Australian subsidiary, Richmond Valley Energy Reserve Holdings Pty Ltd, is conducting a third-party private placement targeting a special purpose company (SPC) established by Meritz Securities. Last July, KoreaZinc announced that it had separately entered into a three-year PRS agreement with Meritz Securities using these new shares as the underlying assets.

Hanwha Group is also utilizing PRS to secure liquidity and optimize asset efficiency by leveraging stakes in its affiliates. In March, HANWHA SYSTEMS transferred 13,281,250 common shares of Hanwha Ocean to a counterparty and entered into a one-year PRS contract using those shares as the underlying asset. The transaction was valued at approximately 1.7 trillion won. HANWHA SOLUTIONS also raised approximately 400 billion won by leveraging its stake in Hanwha Q CELLS USA, its U.S.-based solar business subsidiary.

SK Inc. raised approximately 1.25 trillion won in February by leveraging its stake in SK BIOPHARMACEUTICALS. Using 10,917,028 common shares of SK BIOPHARMACEUTICALS as the underlying asset, the company entered into a three-year PRS contract with five financial institutions, including Korea Investment & Securities. The funds raised are expected to be used to support subsidiaries and improve the group’s financial structure.

The use of PRS is also spreading to mid-sized conglomerates. In April, ILJINHOLDINGS entered into a PRS contract worth approximately 100 billion won, using about 1.16 million shares of ILJIN ELECTRIC as the underlying asset. The reference price is 86,200 won per share, and the contract term is one year, starting May 20.

From a ‘Liquidity Shield’ Against Deteriorating Market Conditions to a Funding Channel for New Businesses

In the past, PRS was primarily used as a financing tool to alleviate the financial burden on industries facing sluggish market conditions, such as petrochemicals and rechargeable batteries. Previously, LOTTE CHEMICAL CORPORATION raised 650 billion won in March of last year by utilizing its stake in its Indonesian subsidiary, Lotte Chemical Indonesia (LCI). In September of the same year, ECOPRO CO., LTD signed a PRS contract worth approximately 800 billion won with six securities firms, including MIRAE ASSET SECURITIES, using shares of its subsidiary ECOPRO BM CO., LTD. as the underlying asset. This move is interpreted as a strategy to secure liquidity while minimizing an increase in debt amid a combination of a slowing business climate and investment pressures.

On the other hand, the scope of PRS utilization appears to be expanding beyond financial defense to include investment in new businesses and asset optimization. This is because major conglomerates such as POSCO, Hanwha, and SK are utilizing PRS as a means to secure new investment funds and reallocate group assets by leveraging their stakes in affiliates.

In fact, by utilizing PRS, companies can secure large amounts of capital while disposing of only a portion of their holdings and maintaining control over their affiliates. This approach reduces the burden of equity dilution resulting from rights offerings or increased debt from corporate bond issuances, and—depending on the transaction structure—it also facilitates the management of financial stability indicators such as the debt-to-equity ratio. This is why PRS is gaining attention as an alternative funding channel that helps avoid stock price declines or shareholder backlash that might occur during corporate bond issuances or rights offerings.

However, PRS does not completely eliminate a company’s financial burden. While it may not appear directly as debt on the financial statements, if the price of the underlying asset falls below the reference price, the company must pay the difference to the counterparty. Although it is a form of asset-backed financing disguised as a sale, it is considered similar to secured borrowing in that it carries the risk of stock price fluctuations related to the sold assets.

An official in the financial investment industry stated, “Since companies can secure funds necessary for operations while managing their financial stability indicators, the scope of PRS utilization and funding techniques is diversifying,” adding, “As it becomes more difficult to conduct capital increases or provide direct financial support to affiliates, this funding method is likely to be used more frequently.”