With the decline in construction industry and a sharp decrease in waste volumes, SK Eco Plant, which restructured its business towards 'environment', is once again in a dilemma. After suffering poor performance since its decision to reinvent itself as an 'environmental enterprise', it has decided to sell its waste treatment subsidiaries.
According to the Korea Environmental Corporation under the Ministry of Environment on the 24th, the volume of construction waste has sharply decreased since peaking in 2020, when there was a construction boom. The annual construction waste generation was ▲ 86.44 million tons in 2020 ▲ 83.81 million tons in 2021 ▲ 76.18 million tons in 2022 ▲ 64.37 million tons in 2023, resulting in a decrease of more than 22 million tons over three years. The statistics for 2024 are expected to be released in December, and a trend of decline is anticipated.
During the construction boom, the environmental industry, including waste recycling, was spotlighted as a business with guaranteed future revenue. Since the construction industry inevitably generates large amounts of waste, it was judged that recycling industries would have a higher sustainability. In fact, the recycling rate of construction waste reaches 99.6%. However, as the construction industry has entered a slump, waste volumes are also declining.
The construction industry is focusing on the moves of SK Eco Plant, which restructured its business as an 'environmental enterprise' five years ago. In 2021, SK Eco Plant changed its name and expressed its commitment to focus on environmental business. Since then, SK Eco Plant has spent 4 trillion won to acquire 15 eco-friendly enterprises. According to the Financial Supervisory Service electronic disclosure system, as of the end of the third quarter last year, the proportion of SK Eco Plant's environmental business was around 18%. Considering the linkages with energy business (16%) and solution business (66%), the actual proportion of the environmental business is said to reach 30%, according to industry consensus.
Following continuous poor performance since the business restructuring, SK Eco Plant has found itself in a situation where it needs to restructure its business again. This month, news has emerged from the investment banking (IB) industry that SK Eco Plant is pushing to sell 75% equity in its water treatment and waste subsidiary Renewus and 100% equity in Renewone, which handles waste landfilling and incineration. This is presumed to be due to the challenging burden of substantial financial costs and performance deterioration that followed the acquisitions. The company's total borrowings increased from 1 trillion won at the end of 2019 to 6.4745 trillion won as of the end of the third quarter last year. The performance recorded an operating loss of 11 billion won and a net loss of 48.2 billion won as of the end of the third quarter last year.
Korea Ratings noted in a report on SK Eco Plant released earlier this month that "given the profit-generating capabilities of the acquired companies, the ability to reduce borrowing burden based on short-term operational cash flow is not expected to be significant."
SK Eco Plant is presenting 'semiconductor comprehensive services' as its new core business. Following the incorporation of semiconductor processing and distribution company Essencore and industrial gas company SK Materials Airplus into its subsidiaries last year, it has established a high-tech business organization. However, considering the promised deadline for its initial public offering (IPO), there is not much time left. SK Eco Plant secured 1 trillion won in investment through convertible preferred stock (CPS) and redeemable convertible preferred stock (RCPS) in 2022 and 2023. In this process, SK Eco Plant promised to complete its IPO by July 2026. If it fails to keep this promise, it will have to pay dividends of 88 billion won in 2027 and 114 billion won in 2028 to CPS investors.
A construction industry official stated, "As construction companies expanded into new businesses during the boom, they are now in a situation of downsizing. It remains to be seen whether the semiconductor service industry chosen by SK Eco Plant, considering synergy with the group, will yield results in the near term."