SK Incheon Oil to Issue 150 Billion KRW Public Corporate Bonds

SK Innovation's 100% Subsidiary as a Strong Backing
Performance Decline Due to Refining Margin Drop
Interest Rate Levels Are Key

SK Incheon Petrochemical Plant Overview

[Asia Economy Reporter Lim Jeong-su] SK Incheon Petrochemicals is issuing 150 billion KRW worth of public corporate bonds to repay borrowings.

According to the investment banking (IB) industry on the 23rd, SK Incheon Petrochemicals recently selected an underwriter and proceeded with the issuance of public corporate bonds. The fundraising scale is known to be around 150 billion KRW.

The raised funds will be used to repay borrowings upon maturity. SK Incheon Petrochemicals has a 150 billion KRW corporate bond issued in May 2018 with a 5-year maturity that will mature in early April.

The issuance interest rate is expected to rise somewhat. The coupon rate of the 5-year corporate bonds issued in 2018, which are subject to refinancing, was about 2.90%. This year, with the absolute interest rate level rising, issuance is expected to be possible at the 5% level. This means the funding cost will increase by about 2 percentage points or more.

If SK Incheon Petrochemicals proposes a reasonable desired interest rate, it is expected that there will be no particular difficulty in attracting investment demand. As a 100% subsidiary of SK Innovation with strong backing, and with the recent spread of corporate bond demand for A+ rated bonds, funds are flowing into safe A+ rated corporate bonds.

However, concerns have been raised that recent earnings deterioration could be a variable. SK Incheon Petrochemicals recorded a loss of 172.2 billion KRW in the third quarter of last year due to a decline in oil prices and refining margins. Amid declining performance, the burden of working capital increased, causing a slight rise in net borrowings.

An IB industry official said, "As an A+ rated company affiliated with a large business group, the recent earnings deterioration will not be a major obstacle to the public bond issuance," adding, "If the interest rate is proposed at a reasonable level, institutional investors seeking high-interest investments will flock in large numbers."