SK Innovation announced at its shareholder meeting held on March 28 that it will reassess numerous businesses it has aggressively pursued so far. The company expressed its intention to focus on select ventures and concentrate its efforts.
According to industry sources on March 28, SK has been conducting an assessment of the overall profitability of its battery sector since the end of last year through McKinsey, a global management consulting firm, under the direction of Chey Chang-won, the chairman of SK SUPEX Council, responsible for overseeing the group’s strategies.
McKinsey is expected to propose reducing focus on the battery materials business rather than strengthening SK on’s battery cell manufacturing. SKIET, a subsidiary of SK Innovation, is involved in the separator business, one of the four major materials in batteries. SK Nexilis, a subsidiary of the petrochemical firm SKC, produces another battery material, copper foils.
An industry insider stated, “SK on invested 7 trillion won in activities such as factory establishment and research and development last year, and plans to invest 7.5 trillion won this year. In this situation, investing hundreds of billions of won in the battery materials sector could be burdensome at the group level.” SK Nexilis and SKIET invested 800 billion won and 494 billion won, respectively, in facility investments last year.
SK is reportedly set to establish the direction for business restructuring based on the McKinsey report, expected to be received as early as next month, as well as proposals from the Competitiveness Enhancement Task Force installed in SK Innovation and 9 subsidiary companies. In the industry, discussions on stake sales of some subsidiaries are anticipated to be on the table. Companies mentioned as potential targets for stake sales include SKIET, the lubricant subsidiary; SK Enmove, with strong cash flow; SK Incheon Petrochem; and a joint venture between SK Innovation and Chinese battery maker EVE Energy. Another industry insider said, “The group’s top executives are calling for bold business restructuring. However, it is still uncertain whether it will lead to the actual divestment of affiliate companies, given that many of them have promising business prospects.”
Analysis suggests that the main subsidiaries of the SK Group have put investment plans on hold, keeping business restructuring in mind. This was observed with SKIET as well. The establishment of a new North American factory, planned for the first half of this year, has been delayed after November. SK Inc., an investment holding company, has not made any new investments this year. Additionally, the SK Group is conducting feasibility assessments for its major businesses, including battery, biotechnology, and semiconductor sectors. Furthermore, another global consulting firm, Boston Consulting Group (BCG), is conducting diagnostic work on the biotechnology business.
The background behind SK Innovation’s business restructuring efforts lies in its deteriorating financial structure. SK Innovation’s debt has more than doubled over the past three years, increasing from 23.04 trillion won in 2020 to 50.76 trillion won last year. To address this, SK Innovation has been providing support in the form of participating in SK on’s rights offerings or providing guarantees for loans SK on obtains from financial institutions. As a result, the company’s credit rating has recently dropped to speculative grade “BB+” according to S&P standards, leading to an increase in corporate bond yields and an overall increase in interest burden.