Korea’s major refiners bid for top local biodiesel material maker

SK Innovation Co., S-Oil Corp. and Hyundai Oilbank were among the preliminary bidders for South Korea’s top biodiesel material maker DK O&T.

The refiners in South Korea, along with seven investors including petrochemical producers and private equity firms, participated in preliminary bidding for DK O&T conducted by its top shareholder STIC Investment Inc. and its underwriter Bank of America-Merrill Lynch, according to investment banking industry sources on Oct. 29. They aim to sell a 100% stake in the company including 70% held by STIC Investment.

DK O&T had focused on the production of animal fats and vegetable oils, but the company shifted its main business area to the biodiesel sector after STIC acquired it. The company collects and purifies waste oil and slaughter by-products to convert them into eco-friendly renewable energy.

Raw materials for biodiesel materials have been in the spotlight as eco-friendly energy is of growing importance in environmental, social and governance (ESG) management initiatives.

The government is requiring a mix of more biodiesel in fuels, raising demand. In April, the European Commission announced a policy to mandate a mix of biodiesel with jet fuels, increasing demand from refiners and petrochemical producers.

DK O&T accounts for about half of South Korea’s market. It logged revenue of 350 billion won ($298.9 million) during the one-year period from July 2020 and 36 billion won in earnings before interest, tax, depreciation and amortization (EBITDA).

The company may be sold at a higher price than initially expected as most refiners and petrochemical manufacturers are joining the race to buy it. If competition intensifies, the size of the deal is expected to rise to about 500 billion won from an earlier estimation of some 400 billion won.

Some bidders are actively looking for consortiums with private equity firms since DK O&T’s operation sites are too small for major conglomerates, according to sources.

Write to Chae-Yeon Kim at why29@hankyung.com
Jongwoo Cheon edited this article.