SK Innovation is reportedly moving forward with securing funding backed by its liquefied natural gas (LNG) power generation company beneath SK Innovation E&S, which integrates its business through the corporate incubator (CIC) method set up last November. This is due to the approaching deadline of 2026 for the initial public offering (IPO) promised by SK Innovation's subsidiary, SK On, along with SK Enmove, which is acquiring funds from financial investors.
According to the investment industry on the 21st, SK Innovation is exploring options to raise up to 5 trillion won by liquidating LNG-related assets from five out of seven city gas subsidiaries of SK Innovation E&S, including Gwangyang Power Plant, Paju Power Plant, Yeoju Power Plant, Hanam Power Plant, and Wirye Power Plant. These power plants are profitable companies engaged in power generation using LNG as fuel, with a combined operating profit of over 600 billion won last year.
An investment industry official noted, "I understand that SK Innovation inquired about funding from its parent company, SK Corp., but was turned down. It is seeking a loan using its power generation company as collateral to secure funding at its own level."
One of the reasons SK Innovation needs to secure funds is that the Korea Exchange has put the brakes on the IPO being pursued by SK Enmove. SK Enmove, a subsidiary of SK Innovation that operates in the lubricants business, is making a re-challenge for listing this year, seven years after its failed attempt in 2018. However, the Korea Exchange required the establishment of shareholder protection measures regarding SK Enmove's duplicate listings during preliminary consultations before the listing review last month.
SK Enmove's equity is held 70% by its parent company, SK Innovation, and 30% by IMM Credit Solution. Since SK Innovation is already listed on the stock market, the controversy over duplicate listings arose as SK Enmove pursued its public offering amid concerns that SK Innovation's value could decline after SK Enmove's listing.
SK Innovation sold 16 million shares of SK Enmove to IMM Credit Solution for about 1.2 trillion won at the time in 2021. It also attached the condition that SK Enmove must list within five years and achieve an internal rate of return (IRR) of at least 5.7%. IMM Credit Solution planned to recover its investment once SK Enmove went public. If SK Enmove fails to list by 2026, SK Innovation will have to pay IMM Credit Solution 1.6 trillion won.
Another reason SK Innovation needs funding is that the battery producer SK On secured investment while promising a deadline for its public offering. Since 2022, SK On has raised 1.2 trillion won and 1.6 trillion won from domestic and overseas investor consortiums, respectively, and has committed to listing by 2026.
If SK Innovation fails to meet the promised revenue within the specified timeframe, it must repay the investment to consortium investors MBK Partners and Hanwha Investment & Securities Private Equity. If it forgoes this, investors can exercise a co-sale right that allows them to sell the SK On equity held by SK Innovation. This means that if SK On does not go public by the promised deadline, the major shareholder, SK Innovation, must also sell its stake in SK On.
The likelihood that SK On will go public next year is slim. Since its launch in 2021, SK On has recorded losses, except for the third quarter of last year. The cost invested in facilities until last year amounted to about 20 trillion won, leading to a challenging financial situation, and it is difficult to recognize its value given the slowdown in electric vehicle demand. However, SK On has contracts with investors to postpone the IPO until 2028.
A representative from SK Innovation stated, "IPO could be possible within 2 to 3 months, so I believe there won't be significant issues with SK Enmove's IPO," adding, "We are considering various options to improve our financial structure." SK Innovation E&S mentioned, "There has been no decision made regarding the funding secured by using the power generation company as collateral."