SK Innovation eyes profit rebound following merger

SK Innovation's factory in Ulsan / Courtesy of SK Innovation

SK Innovation said, Thursday, that its planned merger with SK E&S will bring an additional 2.2 trillion won ($1.6 billion) in earnings before interest, tax, depreciation and amortization (EBITDA) by 2030, in an apparent attempt to convince its minority shareholders to vote for the deal later this month.

“Total EBITDA will increase to 20 trillion won by 2030,” SK Innovation Chief Financial Officer (CFO) Kim Jin-won said during a conference call on second-quarter earnings.

“We are trying to convince key stakeholders that the merger is the best solution to the current crisis, while listening to various opinions from the market.”

His remarks came after SK Innovation reported a 45.8 billion won operating loss during the second quarter as a result of a slowdown in the oil refining, petrochemical and battery sectors.

In particular, its battery manufacturing unit, SK On, once again failed to turn a profit, facing a 460.1 billion won operating loss in the second quarter due to slowing global demand for electric vehicles (EVs).

Given that the merger of SK Group’s two energy affiliates is partly aimed at supporting the struggling battery maker, SK Innovation emphasized its commitment to preparing for the future growth of the EV industry. The company plans to enhance its financial stability and secure cash flow to better position itself for the expected expansion in the sector.

“We understand concerns over the slow growth of our battery business,” Kim said.

“We will continue to do our best to secure technologies that can satisfy various consumer needs and to enhance our cost competitiveness to improve profits.”

In response to a controversy over an exchange ratio of 1.2 SK Innovation shares for each SK E&S share, the CFO pointed out that current regulations mandate that the exchange ratio for mergers involving listed companies be based on market value rather than book value.

“We also take it seriously that our company’s market value is excessively low, compared to our book value,” he said.

“Through the synergy effect after the merger, we will narrow the gap as soon as possible.”

Regarding concerns over the possibility of SK E&S selling its subsidiaries to avoid repaying its debt to investment firm KKR with cash, Kim said that both sides are in talks to prevent the private equity firm’s redeemable convertible preference shares (RCPS) in the gas supplier from affecting the merger.

He also noted that global credit rating agencies expect the merger to contribute to SK Innovation’s stability and financial soundness.