SK Group has been considering to sell off SK Lubricants as part of its restructuring of its energy sector of its affiliates, one of the three main sectors of its operation, together with the SK Telecom and SK Hynix, but has been faced with major problems such as the fall in crude oil prices for the past number of years. The prolonged absence of Chairman Chey Tae-won for more than two years now due to his incarceration has also weighed heavily in the decision to get rid of the lubrication business, which has not been doing well in its operation. The company has been marketing its lubricants under the brand name of Zic.
The group felt confident that the lubrication sector of its energy business would help to expand the group’s profit to improve its financial conditions and also help secure funds for investments in the long run, but also felt it is best to sell it now when it get can get a good price now, officials of the group said.
The possible buyer is rumored to be MK Partners, a private equity fund, which is willing to pay around 2 trillion won or less with the final decision on the price depends on the outcome of the last stages of the talks between the group and the buyer. But the sales talks were broken off.
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The lubrication company launched its operation in 1995 marketing lube oil and its basic oil with its plants in Ulsan and overseas, Spain and Indonesia, turning out some 3.6 billion tons of basic oil for lubricants, the 3rd largest in terms of annual basic oil for lubricants, after Exxon-Mobile and Shell.
The global demand for high-quality lube oil has been on the rise steadily in recent years so much so that SK Lubricants planned to export its lube oil sold in the name of Zic to Saudi Arabia.
But the group has decided to sell the lube oil affiliate despite its excellent operational prospect is linked to the restructuring of the energy sector of the group’s operation with SK Innovation not doing too well.
President Chung Chul-khil of SK Innovation said we will sell non-core companies while the group’s operation will be restructured centered around the core companies. SK Lubricants’ market value is likely to surpass 2 trillion won with annual operating profit ranging from 100 billion won to 200 billion won.
The sale of the lube oil affiliate at this stage would be of great help for SK Innovation in cutting its debts standing at around 8 trillion won, which will be cut to 6 trillion won if the sale of the lube company goes through.
In the meantime, SK Group has been working on the reduction of the employees at SK Innovation through the honorary retirement system, along with the moves to make its affiliates in the energy sector of its operation slim as SK Innovation, the top oil refinery in Korea, has been losing money due to the fall in the crude oil prices last year. Its operating loss hit 231.2 billion won with net loss of 537.2 billion won, ending the year in losses for the first time in its 37 years long history.
This year has been different with the price of crude oil having been stabilized, widening the oil refining margin, which made the oil refinery posting profit in the Q1 of 320 billion won. But President Chung has still a grim view for the oil refinery’s operation. He said the global demand for oil has been weakened due to the economic slowdown in China and Europe, while shale oil has been reforming the oil industry around the world and too many oil refining facilities have been built around the world, causing glut in the global oil market with a structural crisis.
SK Innovation, a holding company within the group, has a number of affiliates includilng SK Lubricants, SK Energy, SK Integrated Chemichal, SK Incheon Petrochemical, SK Mobile Energy and Korea Oil Pipe Corp.
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