LG Chem plans to secure approximately 2.5 trillion won ($2.5 billion) in liquidity through the sale of shares in LG Energy Solution.
On October 28, LG Chem announced that it will enter into a Price Return Swap (PRS) contract using shares of its subsidiary, LG Energy Solution.
A PRS is a derivative contract where a company uses its subsidiary's shares as the underlying asset, paying fees to investors during the contract period and settling the difference based on stock price fluctuations.
As the largest shareholder with a 79.38% stake in LG Energy Solution, LG Chem will use 6,535,939 common shares as the underlying asset for this PRS contract. The contract will last for two years, with a reference price set at the previous day's closing price of 382,500 won per share. The proceeds from the share sale are expected to be received on November 27.
As a result of this transaction, LG Chem's stake in LG Energy Solution will decrease from approximately 79.38% to 76.59%, a reduction of 2.8 percentage points.
LG Chem plans to use the funds raised for debt repayment and to improve its financial structure, as well as for future investments. Approximately 400 billion won, or about 20% of the after-tax cash inflow, will be allocated for shareholder returns, including stock buybacks and cancellations, to enhance shareholder value.
The stock buyback will be conducted through a trust agreement over a period of about six months. During this time, both common and preferred shares will be purchased in proportion to their market capitalization. This marks the first time LG Chem is returning value to shareholders through stock buybacks and cancellations instead of dividends.
In the future, if LG Chem decides to sell additional shares of LG Energy Solution, it will determine the scale of shareholder returns based on a comprehensive assessment of its financial structure and investment capacity. If the company's stock is deemed undervalued compared to its intrinsic value, LG Chem plans to prioritize stock buybacks and cancellations while maintaining dividend stability.
Previously, LG Chem sold approximately 2 trillion won worth of LG Energy Solution shares last year and used about 10% of the after-tax cash inflow for shareholder returns.
* This article has been translated by AI.
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