LG CHEM will move to secure liquidity of 2 trillion won by selling shares of its subsidiary LG Energy Solution.
LG CHEM disclosed on the 1st that it will sell equity in LG Energy Solution worth 1.9981 trillion won. With this disposal, LG CHEM's equity stake in LG Energy Solution will drop from 81.84% to 79.38%.
LG CHEM plans to enter into a price return swap (PRS) contract using shares of LG Energy Solution.
PRS is a derivatives contract that uses a corporation's subsidiary shares as the underlying asset. During the contract term, the company pays fees to investors such as securities firms and settles the difference based on stock price movements.
The underlying asset of this PRS contract is 5.75 million common shares of LG Energy Solution held by LG CHEM. The contract period is three years, and the reference amount applied is the previous day's closing price of 347,500 won per share. The planned disposal date is Nov. 3, and the sale proceeds are to be received the same day.
Regarding the purpose of the disposal, LG CHEM said it is for "enhancing corporate value, including improving the financial structure."
With this PRS contract, LG CHEM will be able to proactively adjust the parent company's equity ratio in preparation for the global minimum tax.
The global minimum tax is a system that more than 140 countries agreed to adopt to prevent a race to the bottom in tax rates between countries and tax avoidance by multinational corporations. If the income of a multinational corporation is taxed at less than 15% in a low-tax jurisdiction, the difference up to 15% is reported and paid in the jurisdiction where the ultimate parent company is located, among others.
If LG CHEM's equity stake in LG Energy Solution remains at 80% or higher, LG CHEM must bear the tax amount under the global minimum tax. Once this share sale is completed, LG CHEM's equity in LG Energy Solution will be reduced to 79.38%, freeing it from the tax burden.