Muristek
SK Gas' liquefied petroleum gas (LPG) station in Incheon, South Korea
SK Group stands out from other South Korean conglomerates in making good use of private equity funds to raise money for business expansion.The country's third-largest business group since 2018 will likely have attracted a total of 11 trillion won ($9 billion) from private equity firms through 12 stake sale transactions, including ongoing deals, according to investment banking sources on Mar. 3. Under its business slogan of "deep change," or a fundamental group-wide transformation, SK has been breaking away from the traditional way of fundraising: loans and bond issues.It has been active in splitting off companies into separate ones and selling shares in the separated arms to PE firms, or listing them on the stock market. Its growing reliance on PE firms as a funding source seemed to reflect the group's flexible funding approach and is being emulated by other Korean business groups such as Hanwha and CJ.However, some market observers cast a wary eye on SK's aggressive PE funding, which they say seems too much.FROM E-COMMERCE TO GAS, OIL SUPPLIERS, PHARMACOBack in 2018, SK Planet Co., an online business operator, sold a minority stake in 11Streeet Co., an e-commerce platform, to H&Q for 500 billion won through convertible preferred stocks.In 2021, SK E&S Co., a city gas supplier, sold 2.4 trillion won ($2 billion) in convertible preferred shares to KKR & Co. on the back of the series of its acquisitions, aimed at transforming into a renewable energy provider.In the same year, SK Innovation sold a 40% stake in SK Lubricants Co., the world’s largest lube base oil supplier, to IMM Private Equity for 1.1 trillion won.Battery maker SK On Co., split off from SK Innovation in 2021, is currently in talks with BlackRock, The Carlyle Group, KKR and Singapore's GIC to raise up to $3.3 billion.SK On's funding round grabbed attention because it drew several PE heavyweights, although they saw the company's proposed investment conditions a bit demanding, according to people with knowledge of the situation."Whatever its business strength, it is structurally impossible for banks and other financial institutions to arrange multitrillion won funding to a new company without collateral," said a corporate finance official at a leading South Korean bank. SK Pharmteco Co., a contract development and manufacturing organization, is also in the process of raising PE funding, which industry watchers said would be aimed at financing a cross-border acquisition.ARMED WITH MONEYThe energy-to-telecom titan's PE fundraising is also in line with its shift of focus toward battery, bio and semiconductor chips to align with the environmental, social and governance standards.
SK Ecoplant Co. recently raised a total of 1 trillion won ($830 million) from four domestic private equity firms, following its $1 billion purchase of Singapore-based electronic waste disposal firm TES Envirocorp Pte. Ltd.The fundraising came after the company divested its plant-building business to a consortium of domestic PE firms and instead acquired waste management and recycling companies, which cost over 2 trillion won.Polyester (PET) film manufacturer SKC Ltd. also received PE funds to advance into the electric vehicle material market. Additionally, SK's new business units -- GPS app T Map Mobility Corp. and over-the-counter streaming app Wavve -- are also backed by PE firms."Group Chairman Chey Tae-won stressed that it would be more regretful to miss out on an opportunity because of a lack of money, rather than watching a company we acquired faring badly," said an SK Group official."In terms of asset securitization, PEFs became our essential partners."Including the stalled plans to offload shares in two other unlisted arms SK Geo Centric Co. and SK Shildus Co. for multibillion dollars, the total amount of the group's PE funding could have reached 15 trillion won. SK Group headquarters in Seoul SPEEDY DECISION-MAKINGSK Group's efforts to reform its decision-making process, under which the board of directors at each subsidiary exerts more influence over key decisions, was another factor behind the group's active partnerships with global PE firms."At SK Group, there is no such thing as an abrupt change to the terms and conditions, or collapse in talks at the last minute to reflect the opinion of its holding company, the group's control tower or its top shareholder," a global PE firm's partner told Market Insight, the capital markets news outlet of The Korea Economic Daily. To improve communication and deal execution with PE houses, SK Group has recruited senior investment bankers and PE managers. Recently, SK Ecoplant hired ex-Credit Suisse director Lim Seongju as vice president. DEBTS TO PAY BACKHowever, some industry insiders warn that SK Group's independent decision-making process by each subsidiary and its generous incentive schemes could drive them further into an expansionary mode. Increased PE funding leads to growing pressure for the group to help PE firms exit their investments after a certain period of time."Investors began to review the contractual terms (of PE funding) in more detail, rather than responding to the announcement itself that they raised huge funding," said a brokerage company analyst covering holding companies.The cooling IPO market, an exit window for PE firms, adds to concerns about the series of SK Group's PE funding deals."They will receive the checks in the not too distant future. By then we will get to know whether they make a profit from the (new) businesses or not." By Jun-Ho Chachacha@hankyung.comYeonhee Kim edited this article