SK innovation stock falls on plan to raise funds through share sale

[Courtesy of SK innovation]

Shares of SK innovation Co., an intermediate holding company of SK Group engaged in petroleum, alternative energy and oil exploration, plunged by 6 percent on Monday on news that the company is planning a share sale of more than 1 trillion won ($766.86 million). Conscious of a backlash from shareholders, SK innovation has said that it will pursue measures to enhance shareholder value, such as share buybacks.

According to the Korea Exchange on Monday, shares of SK innovation closed down 6.1 percent at 171,500 won. Shares of SK Inc., the holding company of SK Group, also experienced a 4.2 percent decline. SK innovation had announced after the market close on June 23 that it had decided to raise 1.18 trillion won through a rights offering, which usually leads to a dilution of equity value, which can negatively impact stock prices.

Securities analysts expect that while this capital increase may initially have a negative impact on stock prices due to the dilution of ownership and debt repayment purposes, the effects will likely be short-lived.

“This unexpected capital increase in the market is likely to weaken short-term investment sentiment,” said Cho Hyun-ryul, an analyst at Samsung Securities Co. “However, looking at previous cases of capital increases by Hanwha Solutions Corp. in 2020 and Lotte Chemical Corp. in 2022, shares of the two companies rose by 10 percent and 5 percent, respectively, 30 trading days after the announcement of their capital increase, due to expectations of business expansion.”

Choi Young-gwang, an analyst at NH Investment & Securities Co., also unveiled a positive outlook, saying that “if SK innovation uses the funds raised to shift away from the existing petroleum refining and petrochemical industries to environmentally-friendly industries such as hydrogen and ammonia, it will be positive from a mid-to long-term perspective.” The fact that this funding is being used for SK innovation’s business rather than its battery subsidiary SK on Co. also shows that concerns about SK on’s financing have been resolved to some extent, the analyst added.

On June 20, CJ CGV Co., a local company mainly engaged in the operation of the movie theaters, announced a plan to raise funds totaling 1 trillion won, including a rights offering of 570 billion won, and has since experienced a decline in stock prices for four consecutive trading days.

CJ CGV shares dropped by 32 percent in just four trading days and closed at 9,790 won on Monday. CJ Corp., the holding company, also experienced an 8.7 percent decline in the same period. CJ CGV‘s financing purpose was to use 67 percent of the proceeds to repay debt, 18 percent to fund facilities, and 16 percent to fund operations.

Meanwhile, SK innovation said at a briefing with institutional investors and analysts on Monday that the total amount of the capital increase will be 1.18 trillion won and that it is considering various options, including buying back its own shares. SK innovation plans to transform its business by investing in green sectors in the mid- to long-term while SK on’s profitability improves.