이 기사는 2021년 08월 06일 07:58 thebell 에 표출된 기사입니다.

The sale of a 49% stake in SK Global Chemical by its parent SK Innovation is likely to fetch less than 1.5 trillion won ($1.31 billion) amid poor performance and weak financial stability.

JP Morgan, which is managing the sale, is likely to shortlist bidders soon, industry sources said Wednesday. Three or four private equity firms are reportedly interested in the deal.

Market insiders see 1 trillion-1.5 trillion won as a fair value for the minority stake. The value reflects that management rights are excluded from the sale and that SK Global Chemical's ability to generate cash has sharply deteriorated.

SK Global Chemical was once estimated to be worth as high as 5 trillion won, making the valuation of a 49% stake 2.5 trillion won. This was because the company had strong ability to generate cash, with an annual revenue of 11 trillion won and operating profit of 500 billion won on average from 2017 to 2019. It also maintained an attractive shareholder return policy, paying dividends of 700 billion-800 billion won per year.

Recently, SK Innovation sold a 40% stake in SK Lubricants for 1.12 trillion won, which makes a 100% equity value of SK Lubricants at 2.8 trillion won. The company’s enterprise value comes to about 3.2 trillion won based on its net debt of 420 billion won in 2020. Its enterprise value/earnings before interest, taxes, depreciation, and amortization (EBITDA) multiple is estimated at around 7.7 times.

When SK Lubricants’ multiple of 7.7 times is applied to SK Global Chemical’s EBITDA of 627.9 billion won in 2019 on a consolidated basis, its enterprise value comes to around 4.8 trillion won and the equity value comes to around 4.5 trillion won after subtracting its net debt of 420 billion won.

The problem is SK Global Chemical delivered an earnings shock last year, recording revenue of approximately 8.47 trillion won and an operating loss of around 53.5 billion won.

Its earnings shock last year was due mainly to external factors including a drop in oil prices. The company wasn’t able to benefit from a drop in naphtha prices, a base material for petrochemical products, because the company used the one which it secured at a higher price in advance. Its operating profit was also hit by narrowed margin in aromatics products.

The outlook is not so rosy either as credit rating agencies don’t expect SK Global Chemical's profitability and financial stability to improve in the near term.

Korea Ratings downgraded SK Global Chemical's credit rating from AA with a negative outlook to AA- with a stable outlook in April.

It also has to be seen whether SK Global Chemical will continue to pursue its active shareholder return policy. The company paid dividends of 800 billion won in 2018 and 700 billion won in 2019 to SK Innovation based on its cash generation ability, recording a dividend payout ratio of 118% and 211%. However, it won’t likely to be easy for the company to maintain a high payout ratio amid deteriorating financial performance.

Market insiders said the company’s minority stake is likely to be valued at a lower price than the company has anticipated.

SK Innovation hired JP Morgan as a sale manager in November 2020 to handle the process to offload a 49% stake in SK Global Chemical. The move is part of the company’s efforts to reduce its exposure to petrochemical business and increase its investments in eco-friendly businesses, including battery. (Reporting by Ha-na Suh)