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Divestment and investment

SK Innovation set to flex muscle with $4 bn in new cash

By May 02, 2021 (Gmt+09:00)

SK Innovation's Ulsan refining complex in Korea
SK Innovation's Ulsan refining complex in Korea

SK Innovation Co., South Korea's leading electric vehicle battery maker, is on course to raise more than 5 trillion won ($4.5 billion) this year from asset sales, which will likely be used to accelerate its transformation into an eco-friendly company.

After putting an end to its two-year dispute with hometown rival LG Energy Solution Ltd. over trade secret infringement and battery-related patent violations last month, the SK Group arm is now pushing ahead with plans to expand its EV battery facilities and to develop eco-friendly materials and hydrogen. 

Following the $2 billion settlement under which it is paying 500 billion won both this year and next on top of royalty payments to LG, SK Innovation cashed in 2.45 trillion won worth of its shares in two units -- SK IE Technology Co. and SK Lubricants Co. Additionally, it expects to receive 1.25 trillion won from the sale of its stakes in two gas fields in Peru to Argentina's oil company Pluspetrol this year.  

Last week, SK IE Technology, a manufacturer of electric vehicle battery separators, priced its shares at the top end of the proposed range, generating 1.35 trillion won in cash for SK Innovation. Its shares will make their Korea Exchange debut on May 11.
 
The IPO comes on the heels of SK Innovation's sale of a 40% stake in SK Lubricants to Seoul-based IMM Private Equity for 1.1 trillion won. Now it is seeking to sell up to a 49% stake in its wholly owned SK Global Chemical Co., which is estimated to generate up to 2 trillion won for the battery maker. 

READY FOR FINANCIAL STORYTELLING

The expected proceeds of over 5 trillion won will be used to build EV battery plants, develop eco-friendly materials and hydrogen fuel cells that align with the group's environmental, social and governance (ESG) management aims. In 2020, SK Innovation posted its largest-ever shortfall of 2.5 trillion won, hit by the decline of oil and chemical product prices in the aftermath of the global pandemic outbreak.

Such a heavy loss forced the company to overhaul its business strategy, which had centered on building the supply chain from oil field development to transportation, and the refining of oil and gas and to chemicals production. As part of the strategic overhaul, it offloaded its stake in two gas fields in Peru last year and divested of its entire ownership in its US shale oil fields and their relevant facilities in January of this year.

SK Innovation's EV battery plant under construction in Georgia
SK Innovation's EV battery plant under construction in Georgia

The string of divestments was part of SK Group Chairman Chey Tae-won's efforts to step up ESG management. Since 2019, the third-largest business group in South Korea has begun to calculate and disclose the social commitments made by its major business arms, which account for half of their evaluation items.

Based on the criteria, SK Innovation created 171.7 billion won in social commitments in 2019, only 14% of its previous year's 1.2 trillion won. For the environmental contribution, the EV battery maker was found to produce a negative social value of 1.4 trillion won.

Behind those asset sales was the difficulty SK Innovation has had in listing some unit companies. Its previous attempts to list SK Lubricants, the lube base oil supplier, had fallen through after its business model failed to win investor support amid unfavorable stock market conditions. By contrast, SK IE Tech drew a record amount of subscriptions from retail investors last week. 

NEW INVESTMENTS

In addition to the two EV battery plants under construction in the state of Georgia, SK Innovation Chief Executive Kim Jun has expressed his intention to further invest in the US to boost capacity. During his visit to the construction site last month, Kim said its third and fourth US plants, if constructed, would likely create another 6,000 jobs by 2025. On top of the 3 trillion won required to complete the two plants in Georgia, the additional plant construction is estimated to cost around 2.5 trillion won, according to analysts. 

The CEO's remarks followed the company's announcement in January of this year that it would build its third electric vehicle battery plant in Hungary for $2.29 billion.

Moody's forecast SK Innovation would spend 4 to 4.5 trillion won per year between 2021 and 2022, including up to 3 trillion won in the battery business and 800 billion won in the production of battery materials.

Separately, the parent SK Group has announced a plan to invest 18.5 trillion won in the hydrogen fuel business by 2025. As part of the initiative, SK Innovation's wholly owned SK Incheon Petrochem Co. will build a liquid hydrogen production facility for 500 billion won by 2023 with an annual production of 30,000 tons. The amount of hydrogen to be produced at the facility will be enough to charge 75,000 units of Hyundai’s NEXO, the world’s first hydrogen-powered SUV, to circle the Earth.

SK Innovation researchers hold samples of pyrolysis oil and insolvent made of waste plastic (Courtesy of SK Innovation) 
SK Innovation researchers hold samples of pyrolysis oil and insolvent made of waste plastic (Courtesy of SK Innovation) 

Another priority for the SK Group is developing eco-friendly plastic products. Last month, SK Global Chemical unveiled biodegradable and recycled plastic at an exhibition in China. Sooner rather than later, the company is committed to developing decayable plastic products that do little harm to the environment. 

SK Innovation's divestments since 2020

When Company/Assets sold Proceeds
May SK IE Tech IPO 1.35 trillion won
April 40% stake in SK Lubricants 1.1 trillion won
April US shale gas field and relevant facilities  Mutilhundred billion won*
Undecided Plans to sell stake in SK Global Chemical Co. 1 trillion-2 trillion won*
Undecided Stakes in two gas fields in Peru 1.25 trillion won
Note: * Estimates

Write to Jae-Kwang Ahn at ahnjk@hankyung.com

Yeonhee Kim edited this article.

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