This article was published on July 14, 2025, at 2:10 p.m. on the ChosunBiz MoneyMove site.
SK Innovation is significantly divesting its liquefied natural gas (LNG) related assets. It is pushing for the liquidity of an LNG power plant worth 5 trillion won, but industry insiders believe it should be regarded as a sale rather than liquidity or loans. A sale of the Boryung LNG terminal, valued at 500 billion won, which is excluded from this liquidity target, is also taking place simultaneously.
The divestment of SK Innovation's LNG assets is known to be led by SK Co., Ltd. It seems to be selling cash cows to sustain its battery subsidiary, SK On. It is reported that SK Innovation plans to use the funds from this LNG asset divestment to reduce liabilities by injecting them into SK On.
◇ “To repay, more than 6 trillion won will be needed in 5 years... unrealistically low”
According to the investment banking (IB) industry on the 14th, SK Group conducted a preliminary tender for the liquidity of LNG assets on the 10th. UBS is assisting with the sale, but it is known to be fully led by SK Co., Ltd.
The liquidity of SK Innovation's LNG assets is primarily based on raising cash from four private power plants, including Gwangyang, Yeoju, Hanam, and Wirye. The Paju power plant was originally included in the liquidity target but has been excluded. In the case of Paju Energy Service, which operates the Paju power plant, SK Innovation and Thailand's EGCO hold equity stakes of 51% and 49%, respectively, making it not possible for SK to liquidate it alone.
Private equity fund (PEF) managers Kohlberg Kravis Roberts (KKR) and Brookfield Asset Management proposed a structure investing in redeemable convertible preferred stock (RCPS). The power subsidiaries will issue RCPS to sell to a special purpose company (SPC), into which the private equity funds will invest. Meritz Securities plans to execute investments worth trillions of won in the form of convertible preferred stock (CPS) for the power subsidiaries and in the form of price return swaps (PRS) for SK Innovation's subsidiary, SK On.
SK Group is maintaining its stance that it will definitely repay the money to be received from this investment. The private equity firms have agreed to grant SK the 'redemption rights' for the RCPS to relieve SK Innovation of its liability burden, but they intend to exercise the call option within 5 years to prevent the RCPS from converting into common stock. Under the Korean International Financial Reporting Standards (K-IFRS), if the redemption right for RCPS is held by the issuer, it is recognized as equity (call option), and if the redemption request right is with the investors (put option), it is recognized as liability.
However, the prevailing view in the IB industry is that this LNG liquidity deal is essentially a sale. One industry insider noted, “Even if the interest rate of over 6% suggested by Meritz applies, SK must have over 6 trillion won in 5 years to make the repayment,” adding, “Considering the decline in the global competitiveness of the three domestic battery companies, particularly SK On, it is questionable whether they can secure such funds in five years.”
◇ “Money-making SK E&S is making sacrifices instead of money-consuming SK On”
SK Innovation is also concurrently proceeding with the sale of the Boryung LNG terminal, valued at 500 billion won. On the 7th, it distributed a limited investment memorandum (IM) to Macquarie Asset Management, Brookfield Asset Management, BlackRock, and IMM Investment. After four weeks of due diligence, they plan to conduct a preliminary offer in the form of a non-binding offer (NBO) on August 4.
The Boryung LNG terminal is a joint venture in which SK Innovation and GS Energy each hold 50% equity. The net worth is 314.1 billion won, and the total liability is 1.2778 trillion won.
An industry insider remarked, “The Boryung LNG terminal was also excluded from the 5 trillion won liquidity deal because there are equity stakes from other companies besides SK, similar to the Paju power plant,” adding, “Initially, there were plans to commence the sale in June, but I understand that the schedule was slightly postponed due to discrepancies with GS Energy.”
Once SK Innovation completes the liquidity of 5 trillion won and the sale of the 500 billion won Boryung terminal, it will have almost no LNG-related assets left. Among the assets that belonged to SK E&S before the merger, only renewable energy, hydrogen, and energy solutions will remain.
Regarding this, there are claims within SK Innovation that they are excessively sacrificing money-making SK E&S to save SK On. SK Innovation merged with SK E&S last November. SK E&S is operated under a corporate-independent company (CIC) within SK Innovation and uses the name 'SK Innovation E&S.'
The industry speculates that the resignation of former SK Innovation CEO Park Sang-kyu was because he raised issues with the group's direction to sacrifice E&S for SK On. Park resigned in May due to deepening underperformance in the battery business. Currently, CEO Choo Hyung-wook and President Jang Yong-ho are leading the business restructuring.