South Korea-based energy company SK E&S Co. is pushing to liquidate its assets by carrying out a stake sale in its profitable city gas businesses. The company aims to raise cash to improve its financial structure and secure resources for new businesses and M&A activities.
According to investment banking sources on Feb. 2, the Korean energy company has decided to sell up to a 49% stake in its city gas businesses while maintaining management rights. SK E&S may include a clause that allows it to repurchase the stakes after a certain period. Other options include raising money by using the city gas businesses as collateral.
Details are still being fine-tuned, but SK E&S plans to complete the deal as early as the first half of this year.
SK E&S is the country's largest city gas supplier.
The company runs seven city gas subsidiaries and is the leading market player with a 23% market share. Its city gas operations report around 140 billion won ($126 million) in operating profit annually and account for almost 60% of the company's overall revenue.
The investment banking industry estimates the company's city gas businesses to be valued at around 3 trillion won ($2.7 billion), almost 11 times the EBITDA of 270 billion won. Considering this valuation, SK E&S may secure over 1 trillion won ($895 million) via the stake sale.
STAKE SALE TO ATTRACT GLOBAL PEFSMany financial investors, including private equity firms, are expected to participate in the deal, given that the city gas business guarantees long-term and stable cash flow.
Potential bidders include Glenwood Private Equity, which recently acquired Seorabeol City Gas Co. and Haeyang Energy Co.; and Macquarie Asset Management, a major shareholder of SK E&S. Other likely bidders are KKR and IMM PE, which have been increasing their investments in infrastructure.
SIGHTS SET ON ECO-FRIENDLY INVESTMENTSSK E&S is expected to use the proceeds to shore up investments in eco-friendly sectors such as renewable energy, including solar energy and hydrogen energy,
which have been identified as the group's future growth engines.
Last year, the company won business rights for the Saemangeum floating solar photovoltaic project, valued at around 2 trillion won ($1.8 billion). This year, the company also carried out a joint investment in
a $1.5 billion deal to acquire a controlling stake in US hydrogen fuel cell maker Plug Power Inc. and launch a joint venture to advance into the rapidly growing Asian fuel cell market.
The company's move is seen as part of SK Group's deep change initiative, to create a financial story for affiliates by breaking away from existing stable profit venues via asset sales and to shift into new business channels with promising growth.
Last year, SK Group's chemical unit SKC offloaded a 49% stake in its cash cow business and used the proceeds to acquire the world's No. 1 copper foil maker SK Nexilis, formerly known as KCF Technologies Co. (KCFT). The deal is considered a model of a smooth business transition.
"Let's make this our first year of a successful transition to establishing a green portfolio that encompasses hydrogen energy, renewable energy and energy solutions," said SK E&S Vice-Chairman Yu Jeong-joon in his New Year's address last month.
The investment banking industry expects SK E&S to speed up its business reshuffling this year as Choo Hyeong-wook, who had handled the SK Nexilis acquisition, was appointed the new president at the end of last year.
Write to Jun-ho Cha at
chacha@hankyung.comDanbee Lee edited this article.
