SK Group in talks with Hahn & Co. to sell SK specialty for $3 bn

[Courtesy of SK specialty Co.]

SK Group’s holding company, SK Inc., is in discussions with private equity firm Hahn & Co. to sell its subsidiary SK specialty Co., according to industry sources on Monday.

SK specialty, which is wholly owned by the group, is a global leader in the semiconductor specialty gas sector, with the sale price estimated at around 4 trillion won ($2.98 billion).

The holding company’s total debt stood at 12.4 trillion won as of the first half of 2024, based on separate financial statements. If SK specialty is sold for 4 trillion won, SK’s debt could decrease by about one-third. This would be the first move by SK Group to reduce its debt following a business restructuring.

As a reference, Hyosung Chemical Corp. sought to sell its specialty gas division, the world’s third-largest player in the sector, in July at a price of 1.3 trillion won in negotiations with its preferred bidder. SK specialty’s annual EBITDA is approximately 250 billion won, around three times higher than Hyosung Chemical’s division. SK specialty produces specialty gases used in semiconductor and display panel manufacturing and holds a leading 40 percent market share in the nitrogen trifluoride sector used for wafer cleaning.

SK specialty reported sales of 355.3 billion won and an operating profit of 54.4 billion won in the first half of 2024, with around 31 percent of its total sales coming from SK Group affiliates as of 2023.

The former OCI Materials, founded in 1982, was acquired by SK in 2015, with SK taking a 49.1 percent stake in the company for 481.6 billion won. The company was later renamed SK materials and became a subsidiary of SK three years ago.

The sale appears to be part of SK Group’s strategy to reduce its borrowings. SK Group announced plans to generate 30 trillion won in free cash flow within three years and reduce its debt ratio to below 100 percent in July 2024.

Korea Investors Service Inc. estimated SK Group’s overall debt ratio at 121 percent at the end of 2023, up from 87 percent in 2020, with total capital and debt estimated at approximately 146 trillion won and 177 trillion won respectively.

Excluding SK discovery Co. and its subsidiaries, SK Group’s debt ratio was 147 percent as of 2023. Including debt-like equity components, such as redeemable convertible preference shares and hybrid securities, the actual debt ratio could be higher.

SK Group completed a rebalancing of its businesses earlier in 2024, focusing on growth engines such as battery maker SK on Co. and energy company SK ecoplant Co. SK E&S Co., a profitable unit generating over 1 trillion won in annual operating profit, was merged with SK innovation Co. to support SK on. Other mergers included SK on with SK trading international Co. and SK enterm Co., while Essencore and SK materials airplus Inc. were integrated into SK ecoplant.

The SK specialty sale is the first major step in SK Group’s post-rebalancing debt reduction plan, with the group aiming to continue disposing of non-core businesses. However, SK Group stated that no definitive decision on the sale has been reached yet.