On May 8, Korea Ratings Corporation stated that while SK Group continues to improve its financial structure through business portfolio restructuring, the future creditworthiness of the group will be affected by whether its battery business shows improvement.
Jang Sumyung, Senior Analyst at Korea Ratings Corporation, said during a webcast on the same day, "The impact of the battery business on the overall financial structure of SK Innovation has significantly increased," and added, "If it is determined that stabilizing the battery business will be difficult for a considerable period, the downward pressure on SK Innovation's credit rating could increase, in connection with the creditworthiness of SK On."
He explained, "Despite large-scale investments, the battery business continues to underperform, resulting in a significant increase in the debt burden for both SK On and its parent company, SK Innovation." However, he also noted, "The strengthening of cash generation capability through measures such as the merger between SK On and SK Trading International is partially mitigating the negative impact that the battery business slump could have on the creditworthiness of SK Innovation and SK On."
Senior Analyst Jang assessed that SK Group's overall performance improved last year, as the large-scale profits from the semiconductor sector offset the decline in profitability in the energy sector. He said, "The energy and semiconductor sectors, which account for about 80% of the group's revenue, show high earnings volatility depending on market conditions and industry trends, and they have a major impact on the group's operating performance." He further explained, "In 2024, despite the deterioration in the battery business, the group's profitability recovered thanks to significant operating profits in the semiconductor sector, driven by competitiveness in artificial intelligence (AI)-related products."
He also forecast that the financial structure would continue to improve this year. He said, "From this year, the capital expenditure needs for the battery business are expected to decrease significantly," and added, "Given SK Hynix's strong cash generation and the results of non-core asset sales, the trend of improving the group's financial structure is expected to continue." However, he added, "For SK Innovation and SK Ecoplant, where the debt burden has increased due to large-scale new investments, improvements in their financial structure have been delayed, and additional measures to enhance financial stability need to be confirmed."
He also explained that SK Group's methods of raising capital need to be closely monitored. Of the capital raised by the group's major affiliates, up to 12 trillion won involves financial volatility. Specifically, these include redeemable convertible preferred shares (4.6 trillion won), convertible preferred shares (3.4 trillion won), hybrid securities (1.6 trillion won), total return swap (TRS) contracts (400 billion won), and price return swap (PRS) contracts (1.5 trillion won).
He said, "In the case of SK Innovation, the amount of capital raised with embedded financial volatility is about 8 trillion won, which is a significant portion within the group," and added, "The financial uncertainty linked to SK On's initial public offering (IPO) requires careful review."
Finally, he explained that the credit risk for SK Group's petrochemical affiliates could increase further. Recently, the credit rating outlook for companies such as SKC and SK PIC Global has been downgraded. In addition, negative impacts are spreading to companies like SK Geocentric. He said, "Despite the group's overall business restructuring, a clear direction for the chemical and petrochemical affiliates has not yet been identified," and added, "If the industry downturn and earnings decline persist, and if specific financial plans are not implemented at the group or affiliate level, the credit risk is expected to increase further."
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