SK suspends controversial IPO of lubricant unit in line with president's shareholder-friendly policy

The SK Group logo is seen outside its headquarters in central Seoul in this undated photo. Korea Times file

SK Group decided to temporarily suspend its plan to spin off SK Enmove, its lubricant-manufacturing unit, from SK Innovation and make it a publicly traded company, Wednesday, as the move is feared to clash with President Lee Jae Myung’s policy to protect retail investors.

In a press release, SK Innovation said it will temporarily halt the initial public offering (IPO) process of SK Enmove "in light of recent capital market conditions and various internal circumstances."

A key group affiliate in petroleum and other energy resources, SK Innovation holds a 70 percent stake in SK Enmove.

The firm said it will acquire the remaining 30 percent stake owned by Ecosolution Holdings, a special company established by IMM Credit Solution for the purpose of investing in SK Enmove shares.

The purchase of all corresponding 12 million shares will be made on July 2, at a per share price of 71,605 won ($52.50).

“Making SK Enmove into a wholly owned subsidiary is the optimal decision to align with SK Innovation’s strategic direction and to enhance SK Enmove’s managerial efficiency,” the company stated.

The announcement came after the president has repeatedly warned against the corporate practice of spinning off core business units from larger affiliates, then listing them separately to raise capital.

The strategy has been controversial, as the share price of the larger affiliate often drops afterward, taking a toll on its shareholders.

Lee has argued that this practice has resulted in a longstanding discount on Korean stock market valuations.

“Retail investors put their money into a company with the hope that its blue-chip subsidiary will ensure high returns,” he said during the presidential election campaign. “However, they end up investing in the wrong company when the subsidiary is carved out and listed separately. This is total nonsense.”

In addition to SK Enmove, SK Innovation planned to list another subsidiary, SK On, while the group’s holding company, SK Inc., considered making SK Ecoplant public.

Seo Yoon-bok, the head of the IPO division at Shinhan Securities, speculated that other conglomerates may be cautious in carrying out spin-offs and IPOs of smaller units from larger affiliates.

“I’d say the trend of expanding corporate scale through IPOs is about to change,” he said.

In the meantime, the government and the ruling Democratic Party of Korea are preparing a range of regulatory measures to prevent spin-off companies from going public and inflicting losses on retail investors.

Market observers have said these measures would gain momentum jointly with the amendment of the Commercial Act aimed at expanding directors’ fiduciary duties to include general shareholders.