SK Incheon Oil Raises 180 Billion KRW Using Future Receivables of SK Energy

Shinhan Investment Corp. Leads 500 Billion Future Receivables Securitization
Financial Burden Increases Due to Performance Deterioration, Minimizing Additional Borrowing

SK Incheon Petrochemical Plant Overview

SK Incheon Petrochem, a 100% subsidiary of SK Innovation, raised 180 billion KRW in funds by utilizing future accounts receivable from its affiliate SK Energy. This move is interpreted as a choice to secure liquidity without increasing financial burdens amid growing repayment pressures due to deteriorating performance.

According to the investment banking (IB) industry, SK Incheon Petrochem recently raised 180 billion KRW with Shinhan Investment Corp. as the lead underwriter. They issued securitized bonds with maturities of 3, 4, and 5 years, using 500 billion KRW worth of future accounts receivable?payment claims SK Energy will receive from selling petroleum products?as the underlying assets.

To raise funds, SK Incheon Petrochem transferred the accounts receivable to a trust managed by Shinhan Bank. The trust then transferred the trust beneficiary certificates, which grant priority rights to receive payment, to a special purpose company (SPC), and the SPC issued securitized bonds backed by these certificates.

The trust will receive payment from SK Energy on behalf of SK Incheon Petrochem and prioritize payments to the securitized bond investors. SK Incheon Petrochem will receive any remaining funds after the principal and interest on the securitized bonds are paid. This method involves selling future assets (accounts receivable) that are almost certain to be held in advance.

By utilizing accounts receivable securitization, funds can be raised without increasing borrowings. It is known that SK Incheon Petrochem decided to use this method to secure funds as repayment burdens increased recently and liquidity worsened due to deteriorating performance.

SK Incheon Petrochem has been struggling with worsening performance, recording a 395.4 billion KRW operating loss in the second half of last year. This was due to concerns over demand contraction amid an economic downturn and a decline in oil prices and refining margins caused by expanded export quotas to China. This trend continued into the first half of this year, resulting in a net loss of 102 billion KRW in Q1.

As cash flow worsened and operating funds increased due to inventory burdens, borrowings also expanded. Net borrowings, calculated by subtracting cash from total borrowings, increased by about 930 billion KRW from 1.87 trillion KRW at the end of 2021 to 2.8 trillion KRW in Q1 this year. During the same period, the debt ratio rose from 218% to 313%.

SK Incheon Petrochem has made efforts over several years to reduce financial burdens. It has only executed routine investments outside of the triennial regular maintenance and has not paid dividends to its parent company SK Innovation since 2020. In 2019, it issued 600 billion KRW worth of hybrid capital securities (perpetual bonds) recognized as equity to lower the debt ratio. In 2021, it sold land in Wonchang-dong and Seoknam-dong, Incheon, for 89 billion KRW.

An IB industry official said, "Most of SK Incheon Petrochem’s sales come from affiliates such as SK Energy, SK Geocentric, and SK Energy International," adding, "Utilizing accounts receivable with stable payment settlements can partially alleviate financial burdens."

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