Hanwha Systems Secures ₩1.7 Trillion via Price Return Swap on Hanwha Ocean Stake, Retaining Upside Exposure

Hanwha Systems raised ₩1.7 trillion by selling a portion of its Hanwha Ocean stake, but used a Price Return Swap (PRS) to keep the potential profits or losses from the stock's future performance.

This deal was timed to leverage high stock volatility and major business prospects like the Canadian submarine project, aiming to secure funding without giving up potential stock gains.

The success of this financing hinges on whether Hanwha Ocean's stock price can rise by more than the annual 5.10% PRS fee.

Hanwha Systems has secured a significant ₩1.7 trillion in cash through a sophisticated financial deal involving its shares in Hanwha Ocean.

At its core, this transaction is a Price Return Swap (PRS). In simple terms, Hanwha Systems sold a 4.54% stake in Hanwha Ocean to a group of securities firms to get cash immediately. However, through the swap agreement, it retains the economic results of owning those shares. If Hanwha Ocean's stock price rises above the agreed-upon base price, Hanwha Systems receives the profit. If it falls, Hanwha Systems covers the loss. It’s a clever way to raise funds without adding debt to the balance sheet while staying invested in the company's future.

So, why make such a complex move now? The decision stems from a convergence of factors. First is the macroeconomic environment. With the Bank of Korea's base rate at a stable 2.50%, the 5.10% annual fee for the PRS represents a calculated premium. Instead of taking a standard loan, Hanwha Systems chose this path for its accounting benefits and flexibility, paying a higher rate to keep debt off its books.

Second, it's about seizing a unique opportunity. Hanwha Ocean's stock has been highly volatile, fueled by major potential contracts like the multi-billion dollar Canadian Patrol Submarine Project (CPSP). Selling the shares outright would mean forfeiting the massive upside if such a deal comes through. The PRS structure allows Hanwha Systems to secure funds for strategic investments now, without giving up its ticket to that potential lottery win.

Finally, this fits into the broader group strategy. There's an existing precedent for monetizing Hanwha Ocean assets within the Hanwha Group. Additionally, the market is aware of a large block of shares held by the Korea Development Bank (KDB) that could be sold at any time, creating price uncertainty (an 'overhang'). This deal allows Hanwha Systems to reduce its direct exposure to this volatility while raising capital for key initiatives, such as its expansion in the U.S. market. In essence, they are paying a 5.10% annual fee, betting that Hanwha Ocean's growth will far outpace this cost.

Price Return Swap (PRS): A financial contract where one party sells an asset but retains the risk and reward of its price changes, receiving cash upfront in exchange for a fee.
Overhang: A market term for a large block of shares that could be sold in the near future, creating downward pressure on the stock price due to the anticipated increase in supply.
Canadian Patrol Submarine Project (CPSP): A major, multi-billion dollar Canadian naval procurement program for which Hanwha Ocean is a potential bidder.

Hanwha Systems Secures ₩1.7 Trillion via Price Return Swap on Hanwha Ocean Stake, Retaining Upside Exposure

Hanwha Systems raised ₩1.7 trillion by selling a portion of its Hanwha Ocean stake, but used a Price Return Swap (PRS) to keep the potential profits or losses from the stock's future performance.

This deal was timed to leverage high stock volatility and major business prospects like the Canadian submarine project, aiming to secure funding without giving up potential stock gains.

The success of this financing hinges on whether Hanwha Ocean's stock price can rise by more than the annual 5.10% PRS fee.

Hanwha Systems has secured a significant ₩1.7 trillion in cash through a sophisticated financial deal involving its shares in Hanwha Ocean.

Price Return Swap (PRS): A financial contract where one party sells an asset but retains the risk and reward of its price changes, receiving cash upfront in exchange for a fee.
Overhang: A market term for a large block of shares that could be sold in the near future, creating downward pressure on the stock price due to the anticipated increase in supply.
Canadian Patrol Submarine Project (CPSP): A major, multi-billion dollar Canadian naval procurement program for which Hanwha Ocean is a potential bidder.