Business Conditions Deteriorating
SK Group’s business conditions are deteriorating due to COVID-19 and downturns in industries such as oil refining, chemical, energy, telecom and semiconductor.
The group’s consolidated cash flow from operating activities totaled 994.8 billion won in the first quarter of this year whereas it amounted to 2,050.2 billion won a year ago. SK Innovation took a direct hit from lower international oil prices and SK Hynix still remains under the influence of U.S.-China disputes.
Meanwhile, its aggressive investment plans set during the past boom are becoming increasingly burdensome. Two trillion won to three trillion won is going to its oil refining and chemical business units each year and the same applies to its semiconductor business unit. In the telecom sector, its investment for 5G network improvement is indispensable. In short, its large investments and cash flow deterioration are likely to affect its financial structure.
In 2017, SK’s interest coverage ratio amounted to 7.33 with its operating profit and interest cost at 5,545 billion won and 783.5 billion won, respectively. However, the ratio fell to 4.39 in 2018, to 2.86 in 2019 and below zero in the first quarter of this year. Under the circumstances, SK Group subsidiaries’ credit ratings are at risk. Moody’s lowered those of SK Innovation and SK Global Chemical from Baa1 to Baa2 in February this year and lowered their credit rating outlooks from stable to negative in April this year after having downgraded the outlook of SK Hynix last year.
This is leading to financing difficulties. SK Energy is now issuing six-month as well as four-day commercial papers and SK Incheon Petrochem’s bonds worth 120 billion won in total are scheduled to mature at the end of July. SK Innovation recently faced a default judgment by the U.S. ITC in its litigation against LG Chem and large contingent liabilities may arise after the final ruling scheduled for October.