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Petrochemicals

SK holds off indefinitely on petrochem unit stake sale

Wide price gap is blamed for collapse of talks between SK Innovation and PEFs

By Sep 08, 2021 (Gmt+09:00)

SK holds off indefinitely on petrochem unit stake sale
South Korea's SK Innovation Co. has put on hold indefinitely its plan to sell up to a 49% stake in SK Geocentric Co., formerly known as SK Global Chemical Co., according to investment banking sources on Wednesday.

The battery-to-petrochemical unit of SK Group has been in talks with private equity firms to reduce its stake in the wholly-owned unit. The stake up for sale was estimated at about 1 trillion to 2 trillion won ($860 million-$1.7 billion), after failing to attract strategic buyers. JPMorgan managed the planned sale.

It drew interest from Affirma Capital, Apollo Global Management, Glenwood Private Equity and STIC Investments. SK Innovation had planned to shortlist them last month.

But talks broke down due to a wide price gap between SK and the bidders, the sources said. The PEFs proposed less than 1 trillion won for a 49% stake in SK Geocentric, whose corporate value was once estimated at 5 trillion won. 

SK Geocentric is South Korea’s leading petrochemical company. It cracks the naphtha produced by SK Energy Co., the country's largest oil refiner, to produce ethylene and propylene, used for industrial chemical and plastic products, as well as aromatics such as benzene, toluene and xylene isomers, the raw materials of plastics and synthetic fibers.

To facilitate the stake sale, SK Group had 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 Geocentric. SK Innovation owns 100% of both SK Incheon and SK Energy.

The oil refining and petrochemical businesses are still the main cash cows of SK Group which is accelerating its transition into eco-friendly ones such as batteries and hydrogen. But they seemed to lose much of their appeal because refineries around the world refrain from aggressive expansion in a global shift toward renewable energy.

Last week, then SK Global Chemical underwent a corporate name change to SK Geocentric., in a move to reidentify itself as a plastic upcycling company.

Separately, 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, according to sources.

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.

Write to Jun-ho Cha at chacha@hankyung.com

Yeonhee Kim edited this article.

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