SK Innovation reshuffles core units to rescue ailing battery business
SK Innovation announced on Wednesday that it has decided to merge two of its subsidiaries -- SK On and SK Enmove -- as the Korean energy firm looks to keep its ailing electrification business afloat amid mounting losses.
According to the announcement, battery producer SK On will acquire SK Enmove, a lubricant maker, with the aim of launching a new entity on Nov. 1.
SK Innovation pointed out that SK On's battery business for electric vehicles and energy storage systems, together with SK Enmove's base oil, lubricant, liquid immersion cooling and EV refrigerant businesses, will create synergy when dealing with clients in the auto industry by offering package deals and cross-product offers.
'We will present a higher level of competitiveness on the global stage as we expect synergy from the merger, combining the two companies' technologies and business capabilities,' said Lee Seok-hee, CEO of SK On, during a press conference at SK Seorin Building in central Seoul.
SK Innovation also laid out plans to raise a total of 8 trillion won ($5.8 billion) this year through rights offerings and stabilize the company's financial structure. SK Innovation will pursue a 2 trillion won paid-in capital increase by third-party allotment and the issuance of 700 billion won worth of perpetual bonds. SK On aims to raise 2 trillion won through a third-party allotment rights offering, while SK IE Technology will raise 300 billion won via a rights offering. SK Innovation will look to secure an extra 3 trillion won by the end of this year.
SK Inc., the holding company of SK Group, which has a 55.91 percent stake in SK Innovation, will invest 400 billion won in SK Innovation's 2 trillion won paid-in capital increase by third-party allotment. SK Inc. will sign price return swaps, or PRS, for the remaining 1.6 trillion won in rights offerings, to be underwritten by several securities companies.
SK Innovation, which owns 100 percent of SK On, will sign PRS deals for SK On's 2 trillion won third-party allotment rights offering and SK IE Technology's 300 billion won rights offering with the participating financial entities. The company added that it will reduce its borrowings by over 1.5 trillion won by selling off non-essential assets before the end of the year.
SK On has yet to become profitable amid a stalling global EV market. The company logged an accumulated operating loss of 3.22 trillion won as of the first quarter this year since it spun off from SK Innovation in October 2021. SK On also held about 23.3 trillion won in net borrowings as of the first quarter, accounting for approximately 70 percent of parent company SK Innovation's total net borrowings.
With Wednesday's rebalancing decision, SK Innovation said it plans to achieve 20 trillion won in earnings before interest, taxes, depreciation and amortization, or EBITDA, and reduce its net borrowings to under 20 trillion won by 2030 to maximize shareholder benefits.
'By improving EBITDA and reducing net borrowings through the portfolio rebalancing of our businesses and financial structure, we will achieve top-tier financial health,' said Jang Yong-ho, executive president of SK Innovation, during the press conference.
Jang dismissed the possibility of the new entity going public for now, saying that the company will focus on enhancing the profitability of SK On's battery businesses.
SK Innovation has been taking various measures to improve its financial structure, merging with SK E&S in November last year, while SK On merged with SK Trading International and SK Entem between November last year and February this year.
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