SK Inno-E&S Merger Overcomes Obstacle... Moving Toward Agreement with KKR

Discussion on Waiving Early Repayment Demand
No Additional Capital Burden
Repayment in November 2026 Remains Unchanged

The 3 trillion won of 'hidden debt' of SK E&S, which was considered an obstacle to the merger between SK Innovation and SK E&S, will be transferred to the merged corporation.

The press conference for the merger of SK Innovation and SK E&S was held on the 18th at the SK Seorin Building in Seoul. Park Sang-gyu, President of SK Innovation, is announcing the details of the merger. Photo by Heo Young-han younghan@

According to the business community on the 23rd, SK E&S is confirmed to be discussing with private equity fund (PEF) operator Kohlberg Kravis Roberts (KKR) to extinguish all 3 trillion won worth of redeemable convertible preferred shares (RCPS) before the merger, and for the merged corporation to succeed the RCPS under the same conditions. In 2021, SK E&S issued RCPS worth 2.4 trillion won to KKR to accelerate investments in new businesses such as hydrogen and renewable energy. Subsequently, an additional 735 billion won was issued in two rounds last year.

Convincing KKR, which holds the RCPS, was the biggest challenge for the merger between SK Innovation and SK E&S. RCPS is a type of stock that simultaneously holds a 'redemption right' allowing investors to demand repayment of the investment at maturity and a 'conversion right' to convert preferred shares into common shares. Due to this structure, if the merger ratio was determined unfavorably for SK E&S, KKR could have opposed the merger. This posed a situation where SK E&S could bear a massive financial burden exceeding 3 trillion won. Concerns grew as the merger ratio was set at 1 to 1.19, valuing SK E&S lower than expected.

On the 18th, Seokun-gi, head of finance at SK E&S, dismissed concerns at a press briefing, stating, "We are conducting amicable negotiations with KKR to maintain the original issuance purpose," and that there is no problem with establishing the merged corporation. This statement implies that the RCPS will be fully inherited by the merged corporation after the merger.

SK E&S and KKR are expected to agree on extinguishing the existing RCPS and having SK Innovation succeed them without incurring additional capital burdens. The RCPS redemption schedule is expected to start from November 2026 under the existing conditions. However, detailed matters related to this are still under negotiation.

SK E&S stated, "Until the merger with SK Innovation is completed, we plan to extinguish the RCPS in the issued shares of the merging company (SK E&S) through various methods such as paid-in capital reduction or redemption," and "We are reviewing various detailed extinction methods until the merger is completed."

Meanwhile, the merger between SK Innovation and SK E&S will be finalized at the extraordinary general meeting of shareholders scheduled for the 27th of next month. The focus is on how well SK Innovation's shareholders can be persuaded. SK Innovation's largest shareholder is SK Inc. with 36.2%, the second-largest shareholder is the National Pension Service with 6.2%, and individual shareholders hold over 20%. For the merger to succeed, approval of at least two-thirds of the voting rights of attending shareholders and more than one-third of the total issued shares is required.