This article appeared on the ChosunBiz MoneyMove (MM) site at 7:34 p.m. on Sep. 15, 2025.
LG CHEM is pushing to issue a price return swap (PRS) backed by equity in its subsidiary LG Energy Solution, and the fundraising is reported to exceed 2 trillion won. Some securities firms are seriously considering putting in up to 600 billion won.
LG CHEM is said likely to sell LG Energy Solution (hereinafter LG EnSol) shares after this PRS. PRS is generally recorded as equity rather than liability for accounting purposes, but there is still debate over how to treat it; if LG CHEM plans to sell the underlying LG EnSol shares, it becomes more likely to be classified as equity. That is also more favorable for investing securities firms, because their risk-weighted assets (RWA) burden would fall, allowing them to handle more transactions with the same capital.
According to the investment banking (IB) industry on the 15th, LG CHEM is pursuing a PRS in the 2 trillion won range using shares of its battery subsidiary LG EnSol as the underlying asset. This is similar to the amount SK On previously raised through a PRS.
Currently Korea Investment & Securities, KB Securities, NH Investment & Securities and Shinhan Investment Corp. are weighing participation, and some of those securities firms are seriously considering investing 600 billion won. Other securities firms are coordinating investment amounts between 300 billion and 500 billion won.
PRS is similar to a stock-secured loan but combines derivative contracts. Settlement is made at maturity according to changes in the underlying asset's value. LG CHEM would provide part of its LG EnSol equity (2.4% stake based on a market capitalization of 83 trillion won) to securities firms as collateral and raise at least 2 trillion won. If LG EnSol's share price is lower at maturity than it is now, LG CHEM would compensate the securities firms for the difference; conversely, if the share price rises, the securities firms would pay LG CHEM the difference under the typical structure.
LG CHEM is said likely to sell LG EnSol equity instead of repaying securities firms their investment when the PRS contract period ends.
Under the OECD's global minimum tax regime, if a parent company holds more than 80% of a subsidiary's equity, the parent must pay the top-up tax on behalf of the subsidiary when the subsidiary's tax rate is lower. Currently LG CHEM owns 81.8% of LG EnSol.
In LG EnSol's case, there has been persistent concern that the effective tax rate of its U.S. subsidiary could fall below 15% because of the U.S. Inflation Reduction Act's advanced manufacturing production credit (AMPC), which could assign additional tax burdens to LG CHEM as the owner of more than 80% of LG EnSol. If LG CHEM sells LG EnSol shares to lower its stake below 80% in this situation, additional taxes would first be recognized at the LG EnSol level and largely cleared before reaching the LG CHEM level.
If LG CHEM plans to sell LG EnSol equity over the medium to long term, it becomes more likely that this PRS will be recognized as equity rather than liability. Although PRS is generally understood as equity for now, there is a substantial view that it should be treated as liability. Multiple accounting firms and securities firms have asked the Korea Accounting Standards Board to provide accounting treatment guidelines for PRS, but no final decision has been made yet.
If PRS is recognized as equity, investing securities firms would also ease their burdens. Securities firms determine how much capital they must hold according to the riskiness of their assets, measured by risk-weighted assets (RWA). If an asset is classified as risky like a loan, they must tie up more capital, whereas if risk is dispersed by structure as in derivative investments, the burden is reduced. Therefore, if PRS is regarded as a derivative rather than a simple loan, securities firms would have the capacity to handle more transactions with the same capital.
A debt capital markets (DCM) executive at one securities firm said, "The accounting treatment for PRS is unlikely to differ across securities firms," and added, "Each securities firm's betting amount will vary depending on how much exposure limit remains to the LG Group."