SK Networks prepares to put SK Rent-a-Car on market

SK Networks Co. is preparing to put SK Rent-a-Car Co. on the market in a deal worth an estimated 600 billion won ($448 million) as part of efforts to transform into an investment firm, according to people familiar with the matter on Tuesday. 

The unit of South Korea’s second-largest conglomerate SK Group has been looking into selling the wholly owned subsidiary since the start of this year. It has not officially hired a sale manager but is working with UBS to prepare the divestment.

SK Rent-a-Car is the country’s No. 2 car leasing company after Lotte Rental Co.

The former in-house operation of the general trading company was split off in 2020 after merging with local rival AJ Rent-A-Car, in which SK Networks had purchased a stake in 2019.

This year, it made SK Rent-a-Car a wholly owned unit following a public tender offer last year at 13,500 won per share and a swap of its treasury shares for a stake in the car rental company in January.

For the tender offer, it estimated SK Rent-a-Car’s enterprise value at 600 billion won.

One of the sources told Market Insight, the capital market news outlet of The Korea Economic Daily, that the purchase of the remaining shares in the car rental firm was aimed at raising its enterprise value before putting it on the market.

“It had held talks with a foreign private equity firm (to sell SK Rent-a-Car),” he said. “In that process, it concluded that (SK Rent-a-Car) would be valued higher if it becomes its wholly owned subsidiary.”

SK Rent-a-Car has been performing well. Its consolidated operating profit shot up 28.3% on-year to 122.0 billion won in 2023, with sales up 12.5% to 1.4 trillion won.

However, elevated interest rates dealt a blow to the company, heavily dependent on borrowings to buy new cars.

Its earnings before interest, tax, depreciation and amortization against financial expenses slid to 7.5 times in 2023, compared to 10.6 in 2022 and 11.9 in 2021, indicating its growing financial burden.

Its debt-to-equity ratio stood at 573.6% as of the end of 2023.

Since 2016, SK Networks has raised fresh money through the divestment of businesses, including fashion, LPG charging stations, petroleum distribution and steel trading.

The proceeds have been funneled into investments in artificial intelligence and data management startups.

Write to Seok-Cheol Choi at Dolsoi@hankyung.com

Yeonhee Kim edited this article.