KKR to buy SK’s gas production facility for more than $785 mn

KKR & Co., a global private equity firm, is set to buy South Korean conglomerate SK Group’s industrial gas production facility at slightly higher than 1 trillion won ($785 million).

SK Inc., the investment and holding company of the country’s second-largest family-run conglomerate, selected KKR as the preferred bidder for SK Materials Airplus Inc.’s factory that supplies industrial gas via pipeline to SK Hynix’s DRAM chip plant in Icheon, Gyeonggi Province, investment banking industry sources said on Wednesday. The seller aims to sign a share purchase agreement (SPA) with KKR later this month.

SK Materials Airplus, wholly owned by SK Inc., is expected to invest the proceeds from the sale into future growth engines. The subsidiary reportedly aims to use the funds for new businesses, including advanced materials.

SK Materials Airplus produces industrial gases by decomposition of oxygen, nitrogen and argon to supply customers in the semiconductor, petrochemical, steel and medical industries. The company, formerly known as SKC Air Gas, was established as a joint venture between SKC and Japan’s Taiyo Nippon Sanso Corp. in 2007. The JV became a wholly owned subsidiary of SK Materials that bought SKC’s stake in 2016 and Taiyo’s shares in 2018. Last year, SK Inc. took over SK Materials Holdings, which owns SK Materials Airplus.

It has been generating stable sales as its key customers are group affiliates such as SK Hynix Inc., SK Energy and SKC, although the industrial gas market is often volatile in line with business conditions of other industries such as semiconductors and displays.

SK Materials Airplus plans to keep operating the Icheon facility as a contractor even after the sale as it has a software system to run all plants in the country. KKR reportedly wanted to keep the relationship with SK Materials Airplus to increase operating efficiency rather than seek a new partner.

STEADY CASH FLOW WITH LONG-TERM CONTRACT

The US PE giant was understood to seek the purchase given the steady cash flow of the Icheon plant that secured a stable customer through a 20-year supply contract with SK Hynix. The facility is also larger than other plants, generating better profitability. It was estimated to continue to log 60 billion won to 70 billion won in earnings before interest, taxes, depreciation, and amortization (EBITDA) every year.

KKR beat other preferred bidders – Macquarie and Brookfield. Macquarie had been expected to win the deal since it is the most active investor in the industrial gas sector. It already owns DIG Airgas Co., South Korea’s top industrial gas producer, and Deokyang Co., another major regional player in the country.

Macquarie, which is also related to another gas supplier of SK Hynix, reportedly emphasized itself as a strategic investor, not a financial investor, proposing various measures to improve the efficiency of the gas plant to the seller. But this was not accepted as it placed a lower offer than KKR’s.

The US PE behemoth, which set up $3.9 billion Asia-Pacific infrastructure fund last year, has been actively investing in South Korea. In November 2021, it agreed to buy newly issued preferred shares in SK E&S Co. for 2.4 trillion won.

Before the investment, KKR purchased a combined 440.8 billion won worth of shares in TSK Corp., a leading South Korean sewage and wastewater treatment firm, from two SK Group units and a Korean synthetic fabrics maker. It also invested 646 billion won to buy a stake in Hyundai Global Service Co.

KKR has been working on due diligence for an investment of up to 4 trillion won in SK On Co., the world’s fifth-largest electric vehicle battery maker owned by SK Innovation Co.

Write to Chae-Yeon Kim at why29@hankyung.com
Jongwoo Cheon edited this article.