MERITZ Securities has been selected as the preferred negotiator for SK Innovation's 5 trillion won liquefied natural gas (LNG) liquefaction deal. It appears that MERITZ gained an advantage with a low interest rate in the 6% range and direct support for SK On.
According to the investment banking (IB) industry on the 16th, SK Innovation has notified MERITZ Securities of this fact. This liquefaction is being assisted by UBS, but it is known that the group holding company SK, Inc. is providing full support.
The liquefaction of SK Innovation's LNG assets is primarily aimed at raising cash based on four private power plants, including Gwangyang, Yeoju, Hanam, and Wirye. Initially, the Paju power plant was also included in the liquefaction targets, but it is reported to have been excluded. In the case of Paju Energy Service, which operates the Paju power plant, SK Innovation and Thailand's EGCO hold 51% and 49% equity respectively, so SK cannot independently liquefy its assets.
In a preliminary bidding held on the 10th, it is reported that MERITZ Securities, along with global private equity fund operators Kohlberg Kravis Roberts (KKR) and Brookfield Asset Management, participated.
KKR and Brookfield proposed a structure for investing in redeemable convertible preferred stock (RCPS). The power subsidiaries will issue RCPS, sell them to a special purpose company (SPC), and private equity funds will invest in this SPC. MERITZ Securities has decided to invest in the power subsidiaries through convertible preferred stock (CPS) and in SK Innovation's subsidiary SK On in the form of a total return swap (PRS) at the hundred billion won level.
MERITZ Securities finds itself in a situation where it must sell down a massive volume of tens of trillions of won to other institutions. However, it is known that its affiliates, MERITZ Fire & Marine Insurance and MERITZ Capital, will jointly bear the volume.
It is reported that MERITZ Securities has requested credit enhancement for CPS from SK Innovation. However, if SK Innovation provides credit enhancement, it is expected to essentially be recorded as a liability. Conversely, if SK removes the credit enhancement, alleviating the risk of liability recognition for CPS and strengthening the nature of 'equity investment', this could lead to a significant increase in the risk weight under the net capital ratio (NCR), potentially restricting other high-risk investment activities.
As the preferred negotiator, MERITZ Securities is expected to negotiate conditions through discussions with SK, Inc. and SK Innovation. This deal is reportedly being led by Jeong Young-chae, an advisor at MERITZ Securities, who previously served as the president of NH Investment & Securities.