SKC streamlines SK nexilis to strengthen financial health

A view of the SK nexilis Jeongeup plant. [Courtesy of SK nexilis Co.]

South Korean conglomerate SK Group is speeding up its rebalancing efforts, with SKC Ltd. engaged in improving the governance and financial structure of its copper foil manufacturing arm, SK nexilis Co.

According to industry sources on Monday, SKC’s board has approved plans to make SK nexilis a direct subsidiary, simplifying its ownership structure.

SK nexilis, previously a second-tier subsidiary, will undergo a reverse merger by absorbing its parent company, SKCFT Holdings Co. The board also approved a paid-in capital increase plan to repay SK nexilis’ debts.

SK nexilis will be directly under SKC through a merger with SKCFT Holdings, a special purpose company created in 2019 to acquire SK nexilis, which was completed in January 2020.

This move aims to streamline governance and improve financial stability amid a downturn in the electric vehicle (EV) market.

The decision comes as SK nexilis faces financial challenges due to a sluggish EV market. While the company posted 199.5 billion won ($150 million) in revenue and 29.6 billion won in operating profit in the second quarter of 2022, its performance has weakened.

In the second quarter of this year, SK nexilis reported 85.8 billion won in revenue and an operating loss of 37.4 billion won.

With market recovery unlikely in the near term, SKC is focusing on bolstering financial health.

To address acquisition debts, SKC plans a 700 billion won capital increase for SKCFT Holdings, aiming to pay off its debts before proceeding with the reverse merger.

This strategy reflects SKC’s intent to secure financial stability for SK nexilis and remove barriers to its future operations.

Additionally, SKC is selling stakes in non-core businesses, including the fine ceramics business and the polyurethane raw materials company SK pucore Co., to reduce debt and improve liquidity amid uncertain EV market conditions.

Once SK nexilis becomes a direct subsidiary of SKC and a second-tier subsidiary of SK Inc., the parent company of SKC, SKC is expected to gain more flexibility in its financial management.

The restructuring also frees SKC from the obligation to fully own SK nexilis, as required under current fair trade laws.

Speculation persists that SK nexilis’ struggles could lead to further restructuring or a potential sale, though SK Group reportedly plans to retain the company.

“While the EV market is facing a slowdown, there is no disagreement within the group about the company’s long-term potential as a future growth engine,” said an SKC official. “Instead of pursuing aggressive investments, we are focusing on enhancing the fundamentals through business structure adjustments.”