[Edaily Marketin KIM YEON-SEO Reporter] As major conglomerates have recently increased their use of price-return swaps (PRS) for fundraising, this has created a significant business opportunity for the large securities firms acting as their counterparties. With traditional investment banking (IB) businesses—such as corporate bonds, initial public offerings (IPOs), and rights offerings—contracting, PRS is emerging as a new revenue stream that can secure stable fee income.

According to the investment banking (IB) industry on the 12th, the funding costs for PRS are typically set higher than the interest rates on general corporate bonds. It is reported that rates in the low to mid-4% range per annum apply to high-quality large corporations, while rates in the 5–6% range apply to general large corporations and mid-sized companies. Among major companies that have entered into PRS agreements from last year through this year, SK On and LG Chem reportedly bore costs in the 4% range, EcoPro and Korea Zinc in the 5% range, and Lotte Chemical in the 6% range.

Securities firms secure annual fees in the 4–6% range over the contract period while receiving compensation from the companies for losses resulting from falling stock prices. Since they can expect a steady return regardless of stock price movements, the market views this as a “surefire win” that favors securities firms.

In the investment banking (IB) industry, there is also a view that as the profitability of traditional IB businesses declines, major securities firms are actively proposing these deals to companies, treating PRS as an alternative revenue source. An IB industry official stated, “PRS deals with large corporations are relatively easy to manage in terms of risk and allow for stable fee income over the contract period,” adding, “Competition to secure deals backed by equity stakes in blue-chip companies is fierce.”

However, some analysts argue that, considering factors such as corporate credit risk, hedging costs, and market risk during the stock disposal process, it is difficult to view these transactions as strictly “risk-free” from the securities firms’ perspective.

In particular, some point out that the nature of the debt involved in PRS must be examined. While they are effectively similar to stock-backed loans—in that a company raises cash, pays a fixed fee, and even bears losses resulting from a decline in stock prices—the associated burdens may not be clearly reflected in financial statements or disclosures. If there is an obligation to repurchase the shares or pay an amount equivalent to the principal at maturity, the transaction should be classified as a borrowing arrangement, and it could also pose a risk to the securities firm providing the funds.

An official from the credit rating industry stated, “If there is an obligation equivalent to principal repayment or share repurchase, and regular financing costs are incurred, the economic substance is close to that of a loan.” The official added, “Even if it is not recognized as a liability for accounting purposes, it should be reflected as a financial burden in credit ratings, and disclosures regarding contract size and settlement terms should be strengthened.”