This article was published on the ChosunBiz MoneyMove (MM) site on Sep. 15, 2025, at 5:21 p.m.
Securities firms are watching whether LOTTE Chemical's 660 billion won equity return swap (PRS) will return to the market. That is because the renegotiation period for the contract signed last year with Meritz Securities has arrived. If LOTTE Chemical cannot find common ground with Meritz Securities on terms such as interest rates, it is understood to plan to repay the principal to Meritz through a PRS with another securities firm.
Securities firms say there are no signs that the petrochemical market will improve and are skeptical about the appetite for LOTTE Chemical's PRS. Still, considering the possibility that additional PRS deals could come from the LOTTE Group in the future, some say participating in this refinancing could be advantageous.
According to the investment banking (IB) industry on the 15th, LOTTE Chemical is discussing with Meritz Securities to renegotiate the 66 billion won PRS contract it signed in November last year.
Last year LOTTE Chemical raised funds via a PRS using a 40% stake in its U.S. subsidiary LOTTE Chemical Louisiana LCC (LCLA) as the underlying asset. The interest rate was in the mid-5% range, creating a structure in which LOTTE Chemical pays Meritz Securities more than 30 billion won in interest each year.
At the time of the PRS contract, LCLA's enterprise value was set at $715.42 million (about 990 billion won), and if LCLA's enterprise value falls below that amount five years after the contract, LOTTE Chemical agreed to compensate Meritz for the difference.
LOTTE Chemical has continued negotiating with Meritz Securities to lower the interest rate. With SK On's 2 trillion won PRS senior rate recently set at 4.3% and the PRS rate being pursued by LG CHEM expected to be set in the 4% range, LOTTE Chemical judged it could lower its rate to some extent as well.
Securities firms are watching whether LOTTE Chemical and Meritz Securities will reach an agreement in their renegotiations. A LOTTE Chemical official said, "We are still talking with Meritz Securities and nothing is decided." It is understood that if LOTTE Chemical cannot agree with Meritz Securities on terms, it will refinance by raising funds through PRS with other securities firms.
If negotiations between the two companies break down and LOTTE Chemical's PRS comes to market, many large securities firms are likely to actively pursue participation. The LOTTE Group is currently considered one of the large companies with a high likelihood of pursuing new PRS. That is because the petrochemical market has deteriorated, putting the entire group through a liquidity crisis.
The LOTTE Group is internally considering PRS, asset sales, securitization and other options. It seems possible for LOTTE Chemical to raise funds using its stakes in LOTTE Energy Materials (47% held) or LOTTE Fine Chemical (43% held) as underlying assets, or for LOTTE Corporation to raise funds using its 25% stake in LOTTE Chemical as collateral.