'SK On Support Burden' SK Innovation Raises 170 Billion KRW from BNK Securities

Before Merger with SK E&S, Responding to Funding Needs
Supporting Investor Principal Protection in SK On's Paid-in Capital Increase
Continuing Overseas Investment Including Funding Loans to US Joint Ventures

SK Innovation, the intermediate holding company for SK Group's oil, chemical, and battery sectors, has raised 170 billion KRW through a securities firm-led loan securitization ahead of its merger with SK E&S. This is due to ongoing loan maturities and operational funding needs despite the merger not yet being completed. Recently, financial support for SK On has also expanded, including guaranteeing principal and interest for new share investors in SK On's 1 trillion KRW rights offering.

At the press conference regarding the merger of SK Innovation and SK E&S, Park Sang-gyu, President of SK Innovation (first from the right), and Chu Hyung-wook, President of SK E&S (second from the right), are attending.
[Image source=Yonhap News]

According to the investment banking (IB) industry on the 17th, SK Innovation received an 11-month loan of 170 billion KRW underwritten by BNK Investment & Securities. A special purpose company (SPC) created by the underwriter lent to SK Innovation, and the SPC issued securitized bonds backed by the loan receivables as collateral. SK Innovation initially drew 102 billion KRW for use and plans to draw the remaining 70 billion KRW as needed.

SK Innovation has not issued corporate bonds since April last year. After conducting a 1.1 trillion KRW rights offering in the second half of last year, it has utilized various alternative financing methods. Recently, it received a short-term credit rating of A1 to issue commercial paper (CP). The related industry expects SK Innovation to issue CP soon. Currently, SK Innovation has no outstanding CP balance. A market insider said, "SK Group affiliates are increasing CP issuance, leading to a rise in short-term funding."

Affiliates in the refining and chemical sectors such as SK Energy and SK Incheon Petrochem have secured funds by securitizing demand drafts and corporate purchase-only card (credit card) accounts receivable as alternatives to corporate bonds. Demand draft securitization involves opening a type of overdraft account with a financial institution and raising funds by securitizing demand drafts issued through the account. Purchase-only card securitization involves credit card companies granting SK Innovation card limits and recovering funds by securitizing card sales receivables.

SK Innovation continues to provide financial support to SK On. Recently, it also provided side support for SK On's 1 trillion KRW rights offering. It guaranteed the repayment of principal and interest on loans borrowed for the purpose of acquiring new shares in SK On by investors in the rights offering. A price return swap (PRS) contract was signed to settle the difference if SK On's market capitalization falls below 27 trillion KRW after listing. Conversely, if SK On's corporate value exceeds 27 trillion KRW, the gains belong to SK Innovation. Although this formally attracted external investors to SK On, in practice, SK Innovation took out loans secured by new shares issued by SK On to participate in the rights offering.

It is interpreted that SK Innovation used a workaround to provide financial support because directly borrowing funds to participate in the rights offering would impose a heavy financial burden. An industry insider evaluated, "The PRS contract allows SK Innovation to support SK On with 1 trillion KRW without cash burden, but it also assumes the contingent liability of guaranteeing principal and interest on the PRS contract."

SK Innovation lent 555.6 billion KRW to SK Battery America, which is participating in a 777.9 billion KRW rights offering led by BlueOvalSK in the U.S. SK Battery America is a U.S. battery joint venture with Ford, holding a 50% stake in BlueOvalSK. Investment burdens have continued since the initial investment in BlueOvalSK in 2022.

An IB industry official said, "Even if SK Innovation does not issue corporate bonds due to uncertainties before the merger with SK E&S, it must continue direct and indirect support for SK On, including investments (Capex) in the U.S. battery corporation, so it is securing liquidity by utilizing other possible financing methods. After the merger with SK E&S, it is expected to reduce short-term funding through public corporate bond issuance and other means."

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