Research Update: SK Innovation, SK Geo Centric Upgraded To 'BBB-' On Merger With SK E&S; Outlook Negative; SK E&S Ratings Withdrawn

The merger of SK E&S Co. Ltd. with SK Innovation Co. Ltd. (SKI), Korea's largest oil refiner, should reduce overall volatility at the enlarged SKI. Historically, SK E&S's businesses and cash flow have been more stable. The addition of city gas and power generation also introduces a degree of diversification. SKI's refining, chemical, and EV battery businesses, meanwhile, face cyclical and secular headwinds. This will likely lead to higher debt leverage in 2024 and 2025. The merger increases SK Inc.'s ownership in SKI to 56% from 36%. Based on its increased ownership interest and the importance of EV batteries to its strategy, we believe that SK Inc. would provide a degree of support to SKI if needed. As such, we

...- The merger of SK E&S Co. Ltd. with SK Innovation Co. Ltd. (SKI), Korea's largest oil refiner, should reduce overall volatility at the enlarged SKI. Historically, SK E&S's businesses and cash flow have been more stable. The addition of city gas and power generation also introduces a degree of diversification. SKI's refining, chemical, and EV battery businesses, meanwhile, face cyclical and secular headwinds. This will likely lead to higher debt leverage in 2024 and 2025. - The merger increases SK Inc.'s ownership in SKI to 56% from 36%. Based on its increased ownership interest and the importance of EV batteries to its strategy, we believe that SK Inc. would provide a degree of support to SKI if needed. As such, we deem SKI a moderately strategic subsidiary of SK Inc. SKI's stand-alone credit profile (SACP) remains at '##+' and the rating now incorporates one notch of support from SK Inc. We continue to equalize the ratings on SK Geo Centric Co. Ltd. (SKGC) with those on SKI, given it...

Research Update