Global private equity fund (PEF) manager EQT Partners, which holds management control of SK shieldus, recently completed a 3.3 trillion won acquisition financing refinancing (refinancing). With this refinancing, SK shieldus' annual financial expense is expected to fall by more than 50 billion won, but some also voice concern that the company's liability has increased, raising its financial burden.
According to the industry on the 15th, the refinancing was carried out to readjust the acquisition financing structure used when EQT bought management control of SK shieldus in 2023. Refinancing means changing loan terms by repaying existing borrowings with newly raised funds. Compared with the high interest rate period 2–3 years ago, current lending rates are lower, so refinancing can reduce interest expense and improve the financial structure.
Earlier in 2023, when EQT acquired 68% equity of SK shieldus from SK Square and Macquarie Asset Management, it secured five-year acquisition financing of 2.35 trillion won through KB Securities. The borrower of the acquisition financing was Korea Security Holdings, a special purpose company (SPC) jointly established by EQT (68%) and SK Square (32%) for the sale of SK shieldus' management control, and the interest rate was in the mid-7% per year. Korea Security Holdings holds 100% equity of SK shieldus.
In this refinancing process, the acquisition financing borrower changed from the SPC Korea Security Holdings to SK shieldus, allowing the funding rate to be lowered. Through this refinancing, SK shieldus lowered the rate from the 7% range to the 5% range and expects to save about 55 billion won in annual interest expense.
However, with the change in the repayment主体, the large borrowing fund was recognized as SK shieldus' long-term liability, sending the debt ratio soaring. As of the first half of the year, SK shieldus' debt ratio was 873%, a sharp jump from about 32% a year earlier. According to SK shieldus' semiannual report, total liabilities in the first half came to 3.2862 trillion won, up more than 280% in a year. The financial structure shifted from effectively debt-free to net debt swelling to 2.2 trillion won.
As SK shieldus' liability surged, some noted it may take time for the cost-saving effect of refinancing to translate into an improved financial structure. Korea Ratings in Jul. maintained SK shieldus' unsecured bond rating at A but revised the outlook to "negative" from "stable." Korea Ratings said, "The expansion of SK shieldus' own financial burden is offsetting the effect of reducing financial expenses through refinancing."
Lee Ye-chan, an analyst at Korea Ratings, said, "SK shieldus signed an acquisition financing refinancing agreement with financial institutions in May, and then paid 2.4 trillion won to its parent company Korea Security Holdings as an interim dividend. Korea Security Holdings used the funds to fully repay the principal and interest of the existing acquisition financing, and the repayment主体 of the acquisition financing was changed to SK shieldus." He added, "The resulting financial burden could act as a constraint on new orders, business activities, working capital procurement, and investment."
Korea Ratings also assessed that the expected effect of strengthening the business base after EQT became the largest shareholder has been weaker than anticipated. Lee said, "With minimal synergy created with security service corporations under EQT and given the high entry barriers and competition in the global market, SK shieldus' overseas sales share remains low at around 5%."
An SK shieldus official said, "We already have a plan to repay borrowing fund, and with annual EBITDA growth of more than 10% and rising free cash flow, there is no issue with financial soundness." SK shieldus plans to cut interest expense, which had approached 170 billion won annually, and use the savings for new investment and research and development (R&D) to improve profitability.
The company said, "We will diversify AI-based unmanned products in line with rising demand for contactless and automation, and launch incident response and prevention services to build a preemptive intelligent threat response system, securing future growth engines."
SK shieldus was born in 2021 through the merger of the physical security brand ADT Caps and SK Infosec. In the first half of the year, SK shieldus' revenue was 1.0492 trillion won, up about 9% from a year earlier. This is the first time half-year revenue has topped 1 trillion won. However, operating profit fell 12.1% to 54.2 billion won over the same period.