Proceeds to go toward debt repayment, future investment and shareholder returns
LG Chem is moving to raise about 2.5 trillion won ($1.89 billion) in liquidity through a derivatives deal backed by shares in its subsidiary LG Energy Solution.
LG Chem disclosed Wednesday that it plans to enter into a price return swap, or PRS, contract using LG Energy Solution shares as the underlying asset.
A PRS is a derivatives contract in which a company uses assets such as subsidiary shares as collateral, paying fees to investors such as securities firms over the contract period and settling the difference based on share price movements. LG Chem carried out a similar transaction last year, selling roughly 2 trillion won worth of LG Energy Solution shares to shore up liquidity.
The underlying asset for this PRS contract is 6,535,939 common shares of LG Energy Solution. The contract runs for two years, with a reference price set at Tuesday's closing price of 382,500 won per share. Proceeds from the share disposal are scheduled to be received Nov. 27.
LG Chem plans to use the funds to improve its financial structure — including repaying debt — and to finance future investment. The company also intends to allocate about 400 billion won, equivalent to roughly 20 percent of after-tax cash inflows, as a resource for shareholder returns, including share buybacks and cancellations.
The buyback will be conducted through a trust arrangement over approximately six months, covering both common and preferred shares in proportion to their respective market capitalization weights. This marks the first time LG Chem has pursued shareholder returns through share buybacks and cancellations rather than dividends.
Going forward, LG Chem said it will determine the scale of shareholder return resources by comprehensively weighing financial soundness and investment capacity for future readiness whenever it sells its LG Energy Solution stake. On the method of shareholder returns, the company said it will prioritize share buybacks and cancellations — within a range that maintains dividend stability — if it judges the share price to be undervalued relative to intrinsic value.
Once the share disposal under this PRS contract is complete, LG Chem's stake in LG Energy Solution is expected to fall by approximately 2.8 percentage points to 76.6 percent.
yeongdai@heraldcorp.com
