Issuance of Convertible Preferred Shares to Meritz Financial Group's SPC
Innovative Debt Repayment Plan Maintains Management Control
Financial Structure Improved Through Large-Scale Fundraising
SK Innovation is accelerating improvements to its financial structure by raising substantial funds through the equity monetization of its power generation subsidiaries.
On the 25th, SK Innovation announced that its subsidiaries, Narae Energy Service and Yeoju Energy Service, have each decided on a third-party paid-in capital increase worth 1.65 trillion won and 1.35 trillion won, respectively. The convertible preferred shares (CPS) to be issued by the two companies will be acquired by the special purpose companies, Nexgen Energy No.1 and No.2, established by Meritz Financial Group. The total amount is 3 trillion won.
Meritz Financial Group will be able to exercise its conversion rights for common shares from April 2030 to October 2035. If all the convertible preferred shares (CPS) held are converted to common shares, Meritz could secure up to 50.1% ownership in each of the two subsidiaries. However, SK Innovation has secured a 'put option' to buy back the CPS from Meritz before the conversion rights are exercised, effectively ensuring the stability of its management control.
SK Innovation plans to use the entire 2.41 trillion won-excluding amounts allocated for debt repayment-from the funds raised to strengthen the soundness of its financial structure. This move is seen as part of the roadmap to raise 8 trillion won in capital within the year, as announced at the corporate value enhancement strategy briefing last July.
Narae Energy Service operates the Wirye and Hanam combined heat and power plants, while Yeoju Energy Service runs the Yeoju liquefied natural gas (LNG) combined cycle power plant. Both are wholly owned subsidiaries of SK Innovation E&S. Last year, the two companies recorded operating profits of 165.6 billion won and 196.6 billion won, respectively, by supplying district energy and electricity in the Seoul metropolitan area.
A merged corporation of SK Innovation and SK E&S, with assets totaling 105 trillion won (as of the first half of this year), has officially launched. After announcing the merger last July and completing the preparation process over the past three months, the largest private energy company in the Asia-Pacific region has been established. The photo shows the SK Seorin Building in Jongno-gu, Seoul, where the SK Innovation headquarters is located. Photo by Kang Jinhyung
Industry insiders view this capital raising as similar to the 2018 case in which SK Innovation sold a 49% stake in Paju Energy Service to Thailand's EGCO. At that time, SK Innovation raised funds by selling a minority stake while retaining management control. Although LNG power plants require significant initial capital investment, they provide stable cash flows after stabilization, making equity monetization a frequently used financial strategy.
SK Innovation E&S has been strengthening its LNG value chain by liquidating non-core assets, such as the sale of Cowon Energy Service and Busan City Gas sites. This latest transaction is also interpreted as a strategy to secure large-scale funds while maintaining operational control, thereby pursuing both financial stability and growth momentum at the group level.
An SK Innovation official stated, "This investment was carried out as part of our company-wide efforts to strengthen our financial structure," adding, "Going forward, we will continue to hold management and operational rights in our power generation subsidiaries while enhancing the competitiveness of the LNG value chain."
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