SK Innovation turns to PEFs to sell stake in SK Global

South Korea's SK Innovation Co. is tapping private equity firms to sell up to a 49% stake in SK Global Chemical Co. after the chemical raw materials maker failed to attract strategic buyers, including the country's two leading refiners, according to investment banking sources on Tuesday.

As part of its plan for the wholly owned unit to launch a joint venture with a petrochemical company, SK Innovation had reached out to S-Oil Corp. and Hyundai Oilbank Co., as well as global oil refiners.

The stake up for sale, handled by JPMorgan, was expected to fetch between 1 trillion and 2 trillion won ($880 million-$1.76 billion).

To facilitate the stake sale, SK Group proposed a package deal under which it sells the group's petrochemical value chain as a whole, including SK Incheon Petrochem Co. and the Ulsan refining complex of SK Energy Co. along with the stake in SK Global. SK Innovation owns 100% of both SK Incheon and SK Energy, the country's largest oil refiner.

Now SK Innovation is looking to private equity houses to drum up interest, with some global PEFs cashing in on the ESG trends to snap up carbon-emitting businesses at a bargain.

The stake sale plan is part of the SK Group's restructuring efforts to scale back on its traditional oil refining and petrochemical businesses to shift toward eco-friendly ones such as lithium-ion batteries and hydrogen.

Last week, SK Innovation said it was considering a spin-off of its battery business and listing the separated entity on the Nasdaq. It added that its green projects will account for 70% of its entire business portfolio by 2025 from the current 30%.

Oil refining and petrochemical operations are still the main cash cows of SK Innovation with solid operating profits and earnings before interest, tax, depreciation and amortization. 

Investment bankers speculate that the company's July 1 announcement may indicate a plan to divest from SK Energy and SK Incheon as well, or reducing stakes in the two petrochemical units. 

But now might not be the best time to sell them at decent prices, given that most petrochemical companies around the world are hesitant about facility expansion. 

"It would have been better for SK Group to make the decision (to sell them) a few years earlier. Then it might have attracted global oil refiners and chemical companies keen to secure production bases in Asia," said a petrochemical industry source. "It's regrettable that SK Innovation, at the center of the SK Group, fell behind in asset securitization."

Recently, SK Innovation has raised 1.1 trillion won ($1 billion) from selling a 40% stake in SK Lubricants Co. to Seoul-based IMM Private Equity, eight years after it began the process in 2013 to sell a stake in the wholly-owned unit, or take it public.

To push ahead with the deal, SK Innovation is granting the option to buy back the stake from IMM in case the worlds' largest lube oil maker fails to go public within a designated period of time. The proceeds will be used to build SK Innovation's new electric vehicle battery plant in the US.

(Corrected to drop the sentence of SK Innovation is willing to hand over its management rights in SK Global Chemical, if the buyer wants.) 

Write to Jun-ho Cha at chacha@hankyung.com
Yeonhee Kim edited this article.