This article was displayed on the ChosunBiz MoneyMove site on July 23, 2025, at 3:43 p.m.
As bills mandating the retirement of corporate treasury stocks are being introduced one after another, corporations are also moving busily to prepare for this. Issuing exchange bonds (EB) based on treasury stocks or entering into price-return swaps (PRS) contracts are typical methods. However, as this goes against the government's stance, they are struggling to find trading partners.
According to the investment banking (IB) industry on the 23rd, corporations that hold treasury stocks are recently meeting with securities firms and private equity fund (PEF) managers to discuss ways to utilize their treasury stocks. In the case of on-market sales, prior disclosure is required, and there is also concern that stock prices might fall excessively, so corporations prefer to issue EB, enter into PRS contracts, and engage in block deals (off-hours bulk trading).
EB is a bond with an exchange right. Before exercising the exchange right, it exists as a fixed-interest bond, and after exercise, it changes to stock. When exchanging, stock is not newly issued; rather, the shares held by the issuing company are transferred to the investor. This prevents the dilution of major shareholders' equity and allows for relatively low-interest issuance, making it highly preferred.
A PRS contract is a transaction in which a securities firm provides funds, for example, by buying stocks held by a corporation. If losses are incurred on the stock at the time the contract expires, the company must compensate the securities firm, and if profits are made, the securities firm must return them to the corporation. During the contract period, the securities firm receives a fee.
It is difficult to find trading partners for EB issuance or PRS contracts. The new government has set a policy direction for corporations to retire their treasury stocks, which means that firms that circumvent this could be branded as partners assisting in non-compliance.
An IB industry source noted, 'Securities firms or PEF managers, which corporations choose as trading partners, are also ultimately under government scrutiny,' adding, 'There is a concerning atmosphere that getting involved in treasury stock-related transactions could lead to unwanted repercussions.'
At the end of last month, Taekwang Industrial, which undertook an EB issuance worth 320 billion won based on its treasury stock, caused controversy by not specifying a trading partner at the time of disclosure. After receiving a correction order from the Financial Supervisory Service, it belatedly identified Korea Investment & Securities as the counterparty for the EB issuance, implying that it was indeed challenging to find a purchaser for the EB.
Of course, there are also PEF managers that have taken on risks to acquire EBs. Earlier this month, IMM Credit Solutions stepped in as a savior for SK Innovation, which issued an EB worth 376.7 billion won, while Korea Investment Private Equity and Helios Private Equity co-acquired an EB worth 310 billion won issued by SKC.
The trend to mandate the retirement of corporate treasury stocks is becoming increasingly stringent. Kim Hyun-jung, a member of the National Policy Committee from the Democratic Party of Korea, submitted a revised law on the 22nd that states new treasury stocks should be immediately retired and existing treasury stocks must be retired within 'six months.' If this bill is passed, considering that it will take effect six months after promulgation, corporations will effectively have up to a year to process their existing treasury stocks.
Revisions to the Commercial Act that would make treasury stock retirement the default principle have been introduced this month, including three proposals from Democratic Party representative Kim Nam-geun. Other representatives from the party, including Min Byeong-deok and Lee Gang-il, are also expected to submit bills, with at least two more expected to be introduced this week.