KKR invests $2 bn in SK E&S' new preferred shares

KKR & Co. has signed an agreement to buy 2.4 trillion won ($2 billion) worth of newly-issued preferred shares in SK E&S Co., the US private equity firm said on Friday.

KKR will be acquiring the redeemable convertible preferred shares in the SK Group unit, which can be redeemed for cash, swapped with SK E&S' assets, or converted into common shares at maturity. 

SK E&S, a unit of SK Inc., will use the proceeds to accelerate its transformation into an eco-friendly energy solutions provider with a focus on hydrogen and renewable energy.

Established in 1999, SK E&S runs a broad range of energy businesses from upstream to downstream, including offshore gas field development, power generation and city gas distribution.

KKR had been in exclusive talks with SK E&S to buy the preferred shares, beating three other shortlisted bidders -- IMM Private Equity, IMM Investment and New York-based EMP Belstar.

As competition intensified for the new preferred shares, SK E&S has increased the amount of funding by 400 billion won to 2.4 trillion won. 

ASIA INFRASTRUCTURE FUND

KKR made the investment from its Asia Pacific Infrastructure Fund. Tapping the fund, KKR last year purchased a combined 440.8 billion won worth of shares in TSK Corp., a leading South Korean sewage and wastewater treatment firm, from two SK Group units and a Korean synthetic fabrics maker.

Then it combined TSK with another Korean waste treatment firm Eco Solutions Co. to create ECORBIT, South Korea's largest waste management company.

KKR has identified energy transition and digital transformation as key drivers of Korean infrastructure opportunities.

"The team also looks to utilize its invested platforms in waste management and renewable energy to scale up through bolt-on acquisitions," KKR said in a press release.

Last year, KKR sold SK Nexilis Co., a copper foil maker formerly known as KCF Technologies Co., to SK Group, for 1.2 trillion won. Copper foils are used as a material for electric vehicle batteries.

SK E&S recently acquired Key Capture Energy LLC (KCE), a US operator of energy storage projects, for $600 million. Earlier this year, the company made a joint acquisition of a controlling stake in US hydrogen fuel cell maker Plug Power Inc., together with the group's holding firm SK Inc., for $1.5 billion.

Following the series of acquisitions, the debt-to-equity ratio at SK E&S rose to 186% at the end of 2020, versus 152% the year previous on a consolidated basis.

Edited by Yeonhee Kim