As SK Group speeds up the overhaul (rebalancing) of its business portfolio by shedding noncore affiliates, market attention is turning to the outlook for SK picglobal, the chemical business subsidiary of SKC. With the sale of SK picglobal struggling due to poor performance and even its own financing hitting a wall, some say it could follow the same path as SK Advanced and SKIET, which were ultimately absorbed by their parent companies.
According to the chemical industry on the 27th, SKC has recently been pushing to sell SK picglobal, but it has not found a buyer due to the industry downturn. An SKC official, however, said, "Nothing has been decided yet regarding the sale of SK picglobal."
SK picglobal is a chemical raw materials (PO·PG) manufacturing corporations established in 2020 after SKC conducted a physical partitioning of its chemical institutional sector and formed a joint venture with Kuwait's state-owned petrochemical company PIC. SKC currently holds 51% equity.
The current situation of SK picglobal is similar to SK Advanced, which was absorbed and merged into SK Gas this month, and SKIET, which was combined into SK Innovation. All three have suffered weak earnings in recent years, and their sale efforts have drifted.
SK picglobal has remained in the red since posting an operating loss in the third quarter of 2022, as a glut of low-priced volumes flooded in due to China's oversupply of propylene oxide (PO) and propylene glycol (PG).
In the first quarter of this year, it posted a brief operating profit on higher selling prices for key products due to the U.S.-Iran war, but there is a strong chance it will swing back to a loss as "reverse lagging" (selling petroleum products made from crude bought at high prices in the past at lower prices when oil stabilizes and falls) occurs going forward.
External financing is effectively blocked. SK picglobal has not raised funds since issuing $10 billion in corporate bonds in Nov. last year. The coupon rate at the time was 5.1%, with a maturity of 1 year and 6 months. SK picglobal currently has a credit rating of A-, with a "negative" outlook. If the credit rating falls, financing conditions could worsen further.
There are also projections that prolonged losses could lead to a chain downgrade of credit ratings for SKC as well as SK Group as a whole. On the 26th, SK Gas bought all the equity in the joint venture and turned SK Advanced into a wholly owned subsidiary to prevent this kind of "credit risk contagion." SK Innovation also said it decided to absorb and merge SKIET to proactively respond to business and financial risks.
SKC is continuing to inject cash to improve SK picglobal's financial structure. This year as well, it plans to execute 100 billion won in damages under a shareholders' agreement. When SKC sold 49% equity to PIC in 2020, it agreed to compensate if operating profit failed to reach a certain level over the next five years. As a result, SKC's financial burden is also continuing to grow.
The damages SKC has paid over two years are similar to SK picglobal's price tag. SK picglobal's book value is 123.3 billion won, of which SKC's held equity is 62.9 billion won. Adding a control premium, the sale price of SK picglobal is estimated at under 200 billion won.
Questions are also being raised about whether SKC has the capacity to absorb and merge SK picglobal. SKC posted an operating loss in 2023 and remains in the red. While it is securing operating funds through asset sales attempts and a rights offering, many say the pace of financial structure improvement is slow. Still, SKC's consolidated liability ratio in the second quarter was 157%, down from 236% in the first quarter.
Recently, SKC has been reorganizing its business around its subsidiary Absolics, which makes semiconductor glass substrates, and SK Nexilis, a copper foil maker for secondary batteries. In May, SKC decided to inject about half of the 1.2 trillion won secured through a rights offering into Absolics. SK Nexilis was also excluded from sale as the electric vehicle market is gradually recovering and demand for energy storage system (ESS) batteries is rising.
An investment banking (IB) industry official said, "Given the current market conditions and earnings, it appears very difficult for SKC to sell SK picglobal at a high price," adding, "Only options remain such as buying PIC's equity to make it a wholly owned subsidiary and then merging it, or carving out and selling only select prime assets."