SK On may secure money for capex from parent company

SK On Co., the world’s fifth-largest electric battery maker, may receive money for capacity expansion from its parent company SK Innovation Co. as the cell manufacturer is struggling to raise funds for its $11 billion capital expenditure plan.

SK Innovation, South Korea’s top refiner, on Thursday indicated potential financial support to SK On. Industry sources expected the energy company of the country’s No. 2 conglomerate to seek a rights offering to help the wholly owned battery subsidiary.

“We are closely watching SK On’s fundraising situations and considering various possibilities,” said SK Innovation Chief Financial Officer Kim Yang-seob during an earnings conference call when asked if SK Innovation plans to inject cash into SK On.

The parent company has been expected to take rescue measures as the battery unit faced tougher conditions to raise money in financial markets, according to investment banking industry sources.

“SK On’s fundraising has been stalled as the situation in financial markets keeps deteriorating,” said one of the sources. “There was market talk that SK Innovation may provide 500 billion-1 trillion won ($353 million-$705 million).”

SK ON STILL IN TALKS FOR PRE-IPO

SK On unveiled a plan to invest 11.3 trillion won in capital expenditures in its half-year earnings statement earlier, but industry sources doubted if the company could meet the spending target, given its weak financial structure and cash flow.

Its total borrowings amounted to 8.5 trillion won on a consolidated basis as of end-June with a debt ratio of 299%. Sustained deficits with a loss before tax of 168.6 billion won in the third quarter are expected to raise the ratio to above 300%.

The company expects a turnaround in the middle of next year, which some industry sources said seemed too optimistic.

SK On has been trying to attract up to 2 trillion won in new share issues from private equity firms at home and abroad. It had aimed to raise 4 trillion won earlier this year but reduced the fundraising target due to sluggish global financial markets. The domestic market was squeezed further by a local developer's debt default on a Legoland theme park in the country.

The company is still in talks to raise money through the pre-IPO, SK Innovation’s Kim said.

“SK On’s fundraising has been delayed but negotiations are underway without a hitch,” he said, although he declined to provide any details.

In October, SK On secured $2 billion in bank loans to build its third plant in Hungary.

Write to Ik-Hwan Kim at lovepen@hankyung.com
Jongwoo Cheon edited this article.