SK mulls massive shake-up in the face of heavy losses, chairman's divorce

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SK mulls massive shake-up in the face of heavy losses, chairman's divorce

Published: 20 Jun. 2024, 18:10 Updated: 20 Jun. 2024, 19:37

SARAH CHEA
chea.sarah@joongang.co.kr

SK Group Chairman Chey Tae-won speaks during a press conference about the court's recent ruling ordering him to pay 1.4 trillion won ($1 billion) to his estranged wife. [YONHAP]

[NEWS ANALYSIS]

SK Group, the country’s second-largest conglomerate, is pushing to streamline its business structure by unloading nonessential affiliates or assets in a desperate move to fill its empty coffers amid lingering financial distress.

Talks over a merger of energy affiliates and the sale of subsidiaries like SK IE Technology, siltron and Nexilis are underway, according to multiple sources, as SK companies face a steep rise in debts due mainly to capital outflow for investments at SK On, an EV battery maker.

Slowing EV sales are delaying the turnaround of the battery maker, leaving its parent company SK Innovation with over 50 trillion won ($36 billion) in debts as of last year.

Some potential deals, therefore, are being drawn up in a way that could inject additional funding into the cash-bleeding affiliate.

SK Innovation on Thursday said in an electronic disclosure that it is considering merging with SK E&S, which will create an energy behemoth with a combined 106 trillion won in assets. The two energy firms under SK Inc., the holding company, also play the role of smaller holding companies that own multiple affiliates.

SK Innovation, 34.5 percent owned by SK Inc., has six major subsidiaries including SK Energy, while SK E&S, 90 percent owned by SK Inc., has 10 smaller energy units under its arm.

“Shareholders of the two firms and SK Inc. are adjusting their different positions,” an SK Innovation executive told the Korea JoongAng Daily, admitting that the merger has been discussed without any conclusion.

The BlueOval SK Battery Park Kentucky in Glendale, Kentucky. SK On and Ford are building two EV plants there. [SK ON]

The potential merger comes as Chey Chang-won, chairman of the SK Supex Council, the conglomerate's top decision-making body, has ordered the heads of key affiliates to “sharply cut” the group's nearly 220 subsidiaries “to a controllable level.”

Key executives at SK entities are expected to enter further discussions at the company’s two-day CEO-level meeting scheduled for late June.

SK Chairman Chey Tae-won has publicly stressed the need for a "rebalancing" of its businesses and investment portfolio.

SK has 219 affiliates as of this year, boasting the highest number of subsidiaries in Korea, according to the latest data from the Fair Trade Commission (FTC). Combining non-listed affiliates, the total climbs to around 800. Either figure vastly outnumbers Samsung at 63, Hyundai at around 70 and LG at 60.

SK Networks on Thursday also said its board approved the sale of SK Rent-a-Car to Hong Kong-based Affinity Equity Partners for 820 billion won in line with the group's restructuring efforts.

“SK’s new business divisions including the battery segment are showing weak contributions to the group’s profit figure,” said Chang Soo-myung, a researcher from the Korea Investors Service. “It is high time SK abandon some and focus on their strengths.”

SK Group Chairman Chey Tae-won, left, and his estranged wife, Roh So-yeong [YONHAP]

Another scenario involves SK Innovation selling part of its 61 percent stake in SK IE Technology, a subsidiary that manufactures battery separators and has a market valuation coming at some $3 billion.

The sell-off is reportedly meant to raise funds for SK On that is desperately needed for the construction of plants in North America.

SK On said it expects 7.5 trillion won in capital expenditures this year alone. It is committed to investing $11.4 billion in three new factories in Kentucky and Tennessee through a joint venture with Ford Motor.

The battery maker has been reporting losses for nine consecutive quarters. It dismissed its chief commercial officer, Sung Min-suk, amid contracting global demand and the group's restructuring efforts.

“SK On is where SK Group has invested most in recent years; SK could never give up on this,” said an industry source. “The key here is how the group can raise the value of SK On ahead of a planned initial public offering [IPO] in 2026.”

Local reports have speculated on a possible merger between SK On and SK Enmove, a supplier of lube base oil, a cash cow.

That scenario, however, is widely disregarded by industry watchers as IMM Credit Solutions reportedly opposes the merger plan. The private equity firm is the second largest shareholder of SK Enmove with 40 percent.

SK was the only conglomerate of the country’s top 10 with a combined net profit of all affiliates failing to reach 1 trillion won, the FTC’s data showed.

The combined net profit of SK’s affiliates plunged 95 percent on year to 660 billion won last year, hit harshly by weak sales for chipmaker SK hynix and oil refiner SK Innovation.

SK Inc., the holding company, had 84.2 trillion won of debt as of the end of 2023, up 74 percent compared to three years ago, according to the Korea Investors Service, a major credit rating agency.

Earlier in the year, SK Magic sold off its home appliance business to KyungDong Navien for 37 billion won.

SK Inc. is also in negotiations with a few companies to sell its 13.3 percent stake in the Chinese food company Joyvio that was acquired in 2019 with an investment of some 220 billion won. The business reported 33.9 billion won in losses last year.

The corporate reconstruction may be coming at the toughest time as Chey has been going through Korea's most expensive divorce case with his estranged wife, Roh Soh-yeong — the court has ordered him to pay 1.4 trillion won.

Liquidating Chey’s stake in SK siltron has emerged as one option to secure the funds. In 2017 when SK Inc. acquired 51 percent of LG Siltron, the chairman entered the deal with a total return swap agreement for 29.4 percent in the affiliate.

His stake is now reported to be valued at some 1 trillion won.

"Some say Chey may get some loans backed by his stakes in SK Inc.,” said an industry source at a securities firm. “But that won’t be an easy option as well, considering the risk posed to his management right.”

The chairman is the biggest stakeholder of SK Inc. at 17.7 percent, and already had a loan of 489.5 billion won backed by his stake as of April.

Earlier in the year, the Seoul High Court ruled that Chey must pay 1.38 trillion won in property division and 2 billion won in alimony to Roh. The ruling also specified the delay interest applied to each amount.

For 1.7 billion won of the alimony, a delay interest rate of 5 percent annually was imposed from Jan. 11 to May 30 this year, rising to an annual 12 percent from the next day until the full payment is made.

BY SARAH CHEA, PARK EUN-JEE [chea.sarah@joongang.co.kr]