SK Ecoplant to sell plant building business before IPO

SK Ecoplant Co., formerly known as SK Engineering & Construction Co., is in advanced stages of talks with a consortium of South Korea-based IUM Private Equity and Mirae Asset Global Investments Co. to sell a majority of its power plant construction business.

Both sides have made substantial progress in negotiations for a deal worth about 500 billion won ($432 million), which the SK Group unit hopes to complete within the year, according to investment banking sources on Sunday.

The planned sale is part of the company's efforts to reduce its debt ratio before it launches an initial public offering, details of which have yet to be known.

To smooth the way for the business sale, SK Ecoplant will hive off the bulk of its ecoengineering division which hires 1,200 employees. The business to be spun off is in charge of building industrial plants, oil and gas refineries and power plants as well as liquefied natural gas (LNG) terminals used for storage, regasification and distribution of imported LNG.

But some of the ecoengineering operations such as the construction of semiconductor plants, nuclear power generators and data centers will remain in SK Ecoplant.

SK Ecoplant has been in private, one-on-one talks with a number of private equity firms to sell the business, instead of undergoing a competitive bidding process.

It plans to finalize the transaction at an October board meeting before a December shareholder meeting. Specifically, it will sell the management rights, or 50% stake plus one share, in the spin-off by issuing redeemable convertible preferred shares (RCPS). The buyer will be allowed to ask the seller to repurchase the shares after a certain period of time.

There are one or two other PEFs, including Seoul-based Hahn & Co., which showed interest in the business up for sale, which may delay the sale process, the sources said.

The ecoengineering division is one of the company's five business segments ranging from construction to waste management. SK Ecoplant has bulked up its waste treatment business through acquisitions, including the 1-trillion-won purchase of South Korea’s largest waste treatment company EMC Holdings Co. in 2020. 

A steady decline in the plant business sales is another reason behind the spin-off plan for a stake sale as its parent SK Group has been making 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.

Sales at the plant construction business, the core operation of the ecoengineering division, dwindled to 1.9 trillion won in the first half of this year, compared with the full-year revenue of 4.7 trillion won in 2020 and 4.8 trillion won in 2019.

STRONGEST CANDIDATE

IUM PE has done a similar deal with SK Ecoplant back in 2015 when the Seoul-based PE firm had bought 160 billion won worth of RCPS issued by SK TNS Co., a subsidiary of SK Ecoplant, to buy a 50% stake. 

The private equity firm exited the investment last year. IUM PE is among the five private equity firms to which the Korean Teachers’ Credit Union on July 20 committed 400 billion won in aggregate.

Other SK Group companies have been trying to raise new cash through their asset securitization. SK Innovation Co. is tapping private equity firms to sell up to a 49% stake in SK Global Chemical Co., a chemical raw materials maker. 

SK E&S Co., the largest city gas supplier in South Korea, is in the process of raising 2 trillion won through the sale of preferred shares to PEFs which have been shortlisted to KKR & Co., IMM Private Equity, IMM Investment Corp. and EMP Belstar.

In April, SK Innovation raised 1.1 trillion won from selling a 40% stake in SK Lubricants Co.

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