'Refusal of Audit Opinion' SK Telesys Faces CP Maturity Rollovers

135 Billion Maturing Within a Year
Refinancing Emergency Amid Trust Decline

[Asia Economy Reporter Lim Jeong-su] SK Telesys is expected to face difficulties in managing the maturity of its borrowings as it received a 'disclaimer of opinion' in its first half accounting audit this year. The company has relied on short-term commercial paper (CP) due to deteriorating finances, but it is now increasingly likely that even short-term funding will become difficult. Meanwhile, CP maturities totaling 135 billion KRW are lined up within the next year, triggering an emergency in liquidity management.

According to the investment banking (IB) industry on the 23rd, SK Telesys has CP maturities amounting to 135 billion KRW concentrated until June next year. The CP volume maturing within this year alone exceeds 70 billion KRW. The short-term credit rating assigned to CP and electronic short-term bonds currently stands at A3-, and if the credit rating falls further, issuing CP will become practically impossible. While needing to respond to CP maturities amid declining cash generation capability, the worsening financial condition and audit issues have increased refinancing uncertainties.

SK Telesys has been in a state of capital erosion for a long time due to large losses in its past terminal business. Since then, sales have declined and profitability has worsened due to fluctuations in the semiconductor market and delays in 5G investments caused by COVID-19 since 2018. As cash generation through operations declined, borrowing burdens increased and financial stability deteriorated. Last year, it recorded an EBITDA loss of 8.2 billion KRW, and the profit in the first half of this year was only 900 million KRW.

As of the end of the first half of this year, SK Telesys remains in a state of capital erosion. On a separate basis, total liabilities amount to 243.9 billion KRW, exceeding assets (177.7 billion KRW) by 66.2 billion KRW. Among these, current liabilities including short-term borrowings obtained through Shin Young Securities, Hanyang Securities, Hi Investment & Securities, and Korea Asset Investment Securities account for most, totaling 243.7 billion KRW.

Although short-term borrowings are maturing one after another, it is uncertain whether CP can continue to be refinanced. This is because SK Telesys’s credit rating has deteriorated and trust in the capital market has plummeted due to the disclaimer of opinion in the audit. A CP market insider said, "It will not be easy to find investment institutions willing to accept CP from companies with uncertain credit and financial conditions."

It is also expected to be difficult to expect direct or indirect financial support from the parent company SKC. SK Telesys has recently received SKC’s support in funding, such as issuing corporate bonds (guaranteed bonds) backed by SKC’s guarantee. An IB industry official said, "With SKC’s management currently on trial for allegedly providing unfair support in SK Telesys’s capital increase, it will be difficult to provide additional support to a troubled subsidiary that received a disclaimer of opinion."

SKC maintains the position that its subsidiary SK Telesys will have no problem repaying short-term borrowings. An SKC official said, "As of the end of the first half, SK Telesys holds cash equivalents of about 80 billion KRW, and 78.9 billion KRW from the sale of its telecommunications business is expected to be received in the second half," adding, "There is sufficient capacity to repay borrowings."

Meanwhile, Samduck Accounting Corporation, the auditor of SK Telesys, expressed a 'disclaimer of opinion' on the semiannual review report disclosed by the company on the 17th.

This content was produced with the assistance of AI translation services.