SK Lubricants looks to tackle investors' doubts

By Park Si-soo

SK Innovation’s recent failure to sell its lubricant-making affiliate, SK Lubricants, to local private equity firm MBK Partners has dealt a blow to the oil refiner’s plans to improve finances.

Now it seeks to restart its push for an initial public offering (IPO).

Yet it’s doubtful whether the plan of listing SK Lubricants on the domestic bourse will unfold smoothly because potential investors appear to have lost their confidence in SK Innovation in the wake of the aborted sale.

The fact that SK Innovation, which had prepared to launch an IPO for the lubricant unit, also attempted to sell it to a private equity fund made investors suspicious about SK Innovation’s commitment to implementing the IPO, industry officials said.

SK Innovation reported an operating loss of 224.1 billion won last year, the first loss in 37 years.

Its CEO Chung Chul-khil has pledged to overcome the industry-wide difficulty by restructuring the firm’s non-core businesses.

However, the aborted deal to sell the lubricant unit has tarnished his leadership. He faces difficulties delivering on his pledges to improve SK Innovation’s finances.

“The biggest uncertainty lies in a lack of consistency and commitment,” an industry source said. “SK Innovation attempted to sell SK Lubricants when the latter’s IPO process was under way, which got investors and market observers perplexed.”

He said the IPO seems to be the only option available for SK Innovation at the moment, but he raised questions over whether the refiner is “genuinely committed” to the lubricant maker’s IPO.

Another source said SK Innovation might have taken the two-track strategy to maximize its benefits, but eventually it has let down investors and jeopardized its IPO plan.

After the sale deal broke down, SK Innovation delayed SK Lubricants’ pre-IPO assessment by the Korea Exchange (KRX) to July. The Korea Investment and Securities, the lead manager for SK Lubricants’ IPO, said it is working as planned.

“I was surprised (by the news of SK Lubricants’ sale) because SK Innovation seemed to have been very serious about the IPO,” a KRX official said. “Nothing may be certain at the moment. Personally speaking, I don’t rule out the possibility that SK Innovation may seek to sell Lubricant again.”

Another fallout from the aborted deal is that SK Lubricants’ estimated market value was revealed.

MBK Partners is known to have suggested 2.5-3 trillion won ($2.257-2.710 billion) to buy SK Lubricants. Investors may calculate the proper stock price of the company based on the bidding price, meaning SK Innovation might have little room to implement the IPO in a way favorable to it.

“No matter what it takes ― sale or IPO ― SK Innovation would face bumpy road in improving its finances,” an industry insider said.

An SK Innovation spokesman said it will push for the IPO plan, but refused to comment on whether the company will put SK Lubricant up for sale again.

“We are seeking to boost the value of SK Lubricants,” he said. He said the reported bidding price for the lubricant unit is not true.

“The alleged bidding price that is circulating in the market is baseless,” the spokesman said.