December 22, 2024

• 

(SK Group)

SK Innovation and SK E&S, both part of South Korea’s SK Group, officially completed their merger Friday, forming the largest privately owned integrated energy company in the Asia-Pacific region, with a combined asset value of 105 trillion won (around $76.1 billion).

What does the merger mean for SK Innovation?

With SK E&S now folded into SK Innovation, the newly merged company can tap into an expanded portfolio that includes oil, chemicals, liquefied natural gas, power generation, battery technology, and renewable energy. The LNG business, in particular, stands out as a stable revenue source that will help fund new ventures into cleaner and more innovative energy options.

In addition to SK E&S, SK Innovation recently completed mergers with its other subsidiaries, SK On and SK Trading International. Another merger between SK On and SK Enterm is scheduled for early next year. Together, these moves help SK Innovation strengthen its position across both traditional and emerging energy markets, giving it the flexibility to meet diverse demands in the energy sector.

How will the new company be structured?

Even though SK E&S has merged into SK Innovation, it will continue to operate with a degree of independence. It’s being set up as a “Company-in-Company” (CIC) under the new name SK Innovation E&S. This CIC model allows SK E&S to keep much of its existing structure and focus, but with access to more resources from the larger SK Innovation organization.

SK Innovation has also finalized a separate merger involving two of its subsidiaries, SK On and SK Trading International, which have now combined under the SK On brand. SK Trading International will be rebranded as “SK On Trading International” and operate as a CIC within SK On.

This combined operation will focus on securing essential raw materials and improving its financial health to strengthen its position in the growing battery market. 

New initiatives for a more versatile energy business

Since announcing the merger back in July, SK Innovation has been busy planning how to make the most of its expanded resources and capabilities. It’s set up teams specifically focused on maximizing synergies across its different energy businesses.

One key initiative under review is a plan to directly import LNG to its Ulsan Complex, where it has its own electricity generation facilities. This would allow SK Innovation to produce power more reliably and at lower cost, using its own LNG imports.

The company is also looking to source condensate -- a valuable byproduct of natural gas -- directly from an Australian gas field that it’s developing with SK E&S. By having direct access to this material, SK Innovation could reduce its costs and secure a stable supply of a resource used in many of its processes.

In addition, SK Innovation E&S is planning to grow its renewable energy business, focusing on power purchase agreements with corporate customers. As the largest PPA provider in South Korea, SK Innovation E&S already has a strong foundation in this area, and it’s now looking to expand further by leveraging partnerships with other SK Group companies.

“With this merger, we’ve created a balanced energy portfolio that positions us for strong growth in the future. Let’s work together to grow our customer base and expand into new markets by creating synergies across our businesses,” said SK Innovation CEO Park Sang-kyu in a letter to employees.

The merger has already improved SK Innovation’s financial outlook. On Friday, global rating agency S&P upgraded SK Innovation’s credit rating from BB+ Stable to BBB- Negative, moving it back into investment-grade territory. S&P cited the merger’s positive impact on business stability and earnings potential, as well as the likelihood of support from SK Group’s parent company if needed.

By Moon Joon-hyun (mjh@heraldcorp.com)