S&P: "SK Innovation's Capital Raising to Ease Leverage Burden"

On August 1, global credit rating agency S&P stated that SK Innovation's capital raising efforts, including its rights offering, are expected to somewhat help alleviate its leverage burden. However, S&P added that ongoing weak business performance continues to weigh on the company's credit indicators.

On July 30, SK Innovation announced multiple funding plans and a group-level business restructuring initiative to strengthen its financial soundness. SK Innovation plans to use the newly raised funds to repay debt. SK On intends to use the funds for both debt repayment and operating capital. The proceeds from the issuance are scheduled to be paid in sequentially during August.

In addition, SK Innovation announced the merger of its battery subsidiary SK On and its lubricants subsidiary SK Enmove. The merger is expected to be completed in November 2025. S&P explained, "With the inflow of SK Enmove's operating profit, SK On's financial structure and performance are expected to improve," and added, "From SK Innovation's perspective, since both subsidiaries are already consolidated, the impact of this merger on its financial statements is considered neutral."

This capital raising is expected to somewhat help ease SK Innovation's debt burden. S&P commented, "The fact that the holding company, SK Inc., is participating in the rights offering and supporting the restructuring demonstrates strong group-level support," and further stated, "SK Innovation's purchase of the convertible preferred shares previously issued by SK On ahead of the merger has also resolved concerns about potential financial burdens that could have arisen depending on SK On's listing status."

SK Innovation is also pursuing additional funding measures, including asset sales. S&P projected that if these asset sales proceed as planned, the final transaction terms could further improve the company's debt burden.

However, due to the continued challenging business environment in its core divisions, S&P expects SK Innovation's ability to maintain its credit rating to remain limited over the next one to two years. In the second quarter of this year, SK Innovation recorded an operating loss of approximately 418 billion won, a significant deterioration compared to the 45 billion won loss in the first quarter. Inventory-related losses in the refining division, caused by falling oil prices, contributed to the overall poor performance. The chemical division recorded an operating loss at a level similar to the first quarter.

S&P noted, "However, a positive aspect in the second quarter results was the significant improvement in the operating performance of the battery division," and explained, "The increase in operating rates, including higher production in the United States, appears to have contributed to the recovery in profitability."