Domestic Credit Rating Agencies: "SK Inno and E&S Merger Contributes to Enhancing Business and Financial Stability"

There is an analysis that the merger of SK Innovation and SK E&S could contribute to enhancing business and financial stability in the energy sector.

According to the credit rating industry on the 21st, domestic credit rating agencies stated that regarding the merger decision between SK Innovation and SK E&S, "There will be no immediate change in credit ratings, but the business portfolio will be diversified and cash-generating capability will be strengthened." They believed that the strengthened cash-generating capability could reduce the negative impact arising from SK On.

Korea Ratings said, "The enhanced cash-generating capability after the merger will help mitigate the negative effects that SK On's debt burden and poor operating performance could have on SK Innovation's credit rating," adding, "In the future, visible operating performance in the battery sector and financial structure stabilization based on an initial public offering (IPO) will be critical factors determining SK Innovation's medium- to long-term credit rating after the merger."

Operating cash flow is also expected to increase. Regarding the redeemable convertible preferred shares (RCPS) issued by SK E&S, Korea Investors Service stated, "Even if the RCPS redemption burden materializes, considering that the merged entity's capital size is expected to be around 40 trillion won, the impact on financial stability will be limited."

President Park Sang-gyu Announcing the Merger of SK Innovation and SK E&S
(Seoul=Yonhap News) Reporter Ryu Young-seok = On the morning of the 18th, at the SK Seorin Building in Jongno-gu, Seoul, Park Sang-gyu, President of SK Innovation, is making an announcement regarding the merger of SK Innovation and SK E&S during a press conference. 2024.7.18
ondol@yna.co.kr
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Concerning the merger of SK On, SK Trading International, and SK Entum, it was forecasted that "the easing of debt burden and support for downside operating performance due to the merger will have some positive effects, reducing the downward pressure on SK On's credit rating."

However, financial burdens were pointed out as a challenge. Korea Investors Service explained, "To defend credit ratings, it is necessary to improve the fundamentals of the business independently and implement self-help measures to further alleviate financial burdens," adding, "Although the immediate financial structure improvement effect from the merger is not significant, if the IPO timing is advanced through enhancing corporate value, the scale of capital increase could grow."

Meanwhile, SK Innovation and SK E&S held board meetings on the 17th and approved the merger agenda between the two companies. To maximize merger synergy and maintain the competitiveness of both companies, the merger is planned to be pursued in the form of a company-in-company (CIC).

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