SK joint venture to acquire Chinese refinery plant

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SK joint venture to acquire Chinese refinery plant

SK Global Chemical will take indirect ownership of a refinery plant in China in a bid to strengthen its presence in the country.

SK Innovation said in a statement Monday that its chemical subsidiary’s joint venture with China Petrochemical Corporation (Sinopec), Sinopec-SK Petrochemical, decided to acquire Sinopec’s Wuhan refinery.

The board of the chemical subsidiary approved an investment of 1.10 billion yuan ($163.3 million) to buy the refinery. As part of the arrangement, Sinopec will also invest 2.05 billion yuan worth of assets.

The Wuhan refinery will cost a total of 12.84 billion yuan.

SK Global Chemical said that the rest of the funds will come from loans and that the acquisition is planned to be completed by the end of the year. SK added that the acquisition was first suggested by Sinopec.

The refinery, located in Wuhan in central China, produces 25 products including gasoline and naphtha, according to Sinopec’s website.

SK explained that the facility is able to refine 170,000 barrels of oil per day and recorded over 350 billion won ($301.6 million) in operating profit in 2017 and 2018.

The acquisition is expected to improve the SK-Sinopec joint venture’s supply of raw materials and cooperation between its refinery and chemical businesses. SK added that it marks the first time that a Korean company will take a direct role in a refining facility in China.

The joint venture has proven to be a success for SK, earning over 2 trillion won in annual sales. Established back in 2013, the joint venture is currently increasing facility production to have the second-largest naphtha processing capacity in China by 2020.

SK Global Chemical has a 35 percent stake in the joint venture, with Sinopec owning the rest.

“The acquisition of the Wuhan refinery is a part of a process to combine refining and chemical businesses and it will improve Sinopec-SK Petrochemical’s competitiveness to the highest level in China,” said SK Global Chemical CEO Na Kyung-soo in a statement.

“Through further cooperation with Sinopec, [we] will continue to pursue additional growth opportunities,” Na added.

The announcement comes just after SK Global Chemical’s parent company, SK Innovation, posted disappointing earnings for the first quarter last week.

The company reported 211.5 billion won in consolidated net profit for the January to March period on Thursday, a 55.3 percent decline from the previous year. Operating profit for the quarter also fell 53.5 percent to 331.1 billion won.

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