SK On narrows bidders to BlackRock, Carlyle, KKR, GIC

South Korean battery maker SK On Co. has narrowed bidders for its shares worth up to $3.3 billion to four candidates -- BlackRock, The Carlyle Group, KKR and Singapore's GIC -- and notified them of the decision on Thursday, according to people with knowledge of the matter.

The world's No. 5 battery maker for electric vehicles is offering its shares to raise between 3 trillion and 4 trillion won ($2.5 million-$3.3 billion) to finance facility expansion.

It estimated its corporate value at 35 trillion won, higher than the consensus estimate of 25 trillion-30 trillion won by the bidders.

Its share sale drew eight preliminary bidders, including Blackstone and Saudi's sovereign wealth fund Public Investment Fund. After receiving their letters of intent by the Feb. 7 deadline, however, SK On was said to have requested the bidders to adjust their valuations on the company to narrow the gap. 

Among the shortlisted bidders, both Carlyle and KKR are touted as the strongest candidates, according to the sources.

Alongside their strong track record of billion-dollar investments in South Korea, they had jumped on the SK On deal far ahead of other bidders, even before the sell-side had not disclosed details of the stake sale plan.

In the case of KKR, it already has close relationships with the SK Group, having invested 2.4 trillion won in preferred shares of SK E&S Co., a city gas supplier, in 2021.

In 2020, SK Group bought SK Nexilis Co., a copper foil maker formerly known as KCF Technologies Co., from KKR for 1.2 trillion won. Copper foils are a material used in making EV batteries.

Two other shortlisted bidders -- GIC and BlackRock -- are also understood to have offered attractive conditions to invest in SK On. 

The sovereign wealth fund's bid for SK On came on the heels of its sizeable investment in LG Energy Solution Ltd. in the billion-dollar range last month during its $11 billion IPO process.

For BlackRock, SK On will become its first Korean target for direct investment. Earlier this week, the world’s largest asset manager named a new institutional investment head for the Asia Pacific region.

ESG-THEMED INVESTMENT

Despite consecutive years of losses and the absence of an IPO timetable, SK On is regarded as one of the few targets that qualify as an environmental, social and governance (ESG) investment, to which global PE firms are keen to increase their exposure, the sources said.

But their bid proposals were unexpectedly diverse. Despite SK On's plan to sell common shares, some bidders came with an option to buy preferred stocks convertible into ordinary shares.

"Despite a large number of global investors joining the race for SK On shares, their bid proposals were not as attractive as the company had expected, " one of the sources told Market Insight, the capital market news provider of The Korea Economic Daily.

"It will be a tough road ahead for their negotiations." 

Moreover, LG Energy Solution's lackluster performance in the stock market inserted a note of caution into SK On and other battery makers, another industry source said.

Shares in LG Energy Solution have slid 30% since hitting a peak of 598,000 won on their first trading day on Jan. 27.

LG Energy controls one-fifth of the world's EV battery market, trailing China's CATL with a 32.6% share as of 2021. SK On takes a 5.6% share.

SK On will receive final bids around April after due diligence is conducted next month. Deutsche Bank and JPMorgan are managing the stake sale. 

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