SK Advanced Raises Funds Through Private Bonds... 'Governance and Credit Uncertainty' Increases

Korea Investment & Securities Leads 30 Billion Bond Issuance
Financial Strength Weakens as Debt Increases Amid 3 Years of Losses
Growing Anxiety Over Potential Inclusion in Business Restructuring Targets

SK Advanced, a propylene manufacturer affiliated with SK Group, has issued a private bond worth 30 billion KRW. As loan maturities continue and investments increase, the demand for funds is rising, but the financial strength is gradually weakening. Recently, with additional credit rating downgrades and uncertainties about the governance structure, it is interpreted that funds were raised through private bonds instead of public bonds.

SK Advanced Ulsan PDH Plant Overview (Provided by SK Engineering & Construction)

According to the investment banking (IB) industry on the 14th, SK Advanced issued a private bond worth 30 billion KRW with Korea Investment & Securities as the lead manager. A special purpose company (SPC) created by the lead manager acquired the private bond and then issued a 3-month maturity securitized bond using it as collateral. Korea Investment & Securities provided a liquidity support agreement to the SPC for the private bond. This means that if SK Advanced fails to properly repay the loan, the necessary funds for repayment will be supported.

SK Advanced had continuously raised funds through private bonds until it issued a public bond in April. Despite deteriorating performance due to worsening propylene supply and demand, it increased investments by borrowing, which led to a decline in credit rating. Although it is an SK Group affiliate, its credit rating fell to A- last year. The credit rating outlook is marked as ‘negative,’ raising the possibility of further credit rating downgrades.

The deficit situation continues this year as well. SK Advanced recorded an operating loss of 129 billion KRW in 2022 and a loss of 82.5 billion KRW in 2023. It also posted a loss of 26.3 billion KRW in the first quarter of this year, marking the third consecutive year of losses. Despite the losses, investments have increased, and borrowings have surged from 203 billion KRW in 2021 to 480 billion KRW in the first quarter of this year.

The burden of debt that must be repaid in the short term is also significant. As of the end of the first quarter this year, short-term borrowings and long-term current liabilities (long-term borrowings with imminent maturity) that must be repaid within one year amount to 270 billion KRW. Due to worsening cash flow, most of the repayment funds need to be refinanced.

A credit rating agency official warned, "If the performance deterioration continues and borrowings increase, the credit rating could be further downgraded." If the credit rating falls one notch further, it will drop to BBB+.

Recently, uncertainties about the governance structure have also been raised. There are expectations that SK Group, which is in crisis, will reorganize some underperforming petrochemical businesses as part of business restructuring to realign its operations. In this process, SK Advanced is expected to be a potential sale candidate.

An IB industry official said, "In a situation where there is significant uncertainty about credit rating and governance, it will not be easy to continuously issue public bonds," adding, "Until some of the uncertainties are resolved, they have no choice but to respond to funding needs through private bonds or other methods."

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