SK On to sell $360 mn in perpetual bonds amid tough EV market

SK On Co., the world’s fifth-largest electric vehicle battery maker, plans to sell 500 billion won ($359.6 million) in its first perpetual bond to improve its financial stability and invest in production facilities amid the sluggishness of the global EV industry on weaker demand.

SK On is scheduled to issue the bonds with a maturity of 30 years on June 27 at a coupon rate of 6.424% per annum, according to the South Korean company’s regulatory filing.

Local brokerage houses such as Korea Investment & Securities Co., NH Investment & Securities Co., Samsung Securities Co. and SK Securities Co. are set to buy the bonds, according to the filing on Tuesday.

The perpetual bond issuance is expected to accelerate SK On’s moves to improve its liquidity, investment banking industry sources said.

“The bond sale is predicted to improve SK On’s financial conditions, easing burdens on additional fundraising through the issuance of debts in local and foreign currencies,” said a corporate bond official at a major domestic securities firm.

Perpetual bond offerings by non-financial firms in South Korea are poised to hit new records this year as many companies have flocked to the hybrid bond market as a quick fix to deal with their mounting debts.

The bonds with an average maturity of 30 years, which can be extended repeatedly, pay their holders interest almost forever, like dividend-paying stocks. In this nature, they are often viewed as a type of equity, not a debt.

TO IMPROVE FINANCIAL STATUS

SK On, the secondary battery subsidiary of South Korea’s top energy company SK Innovation Co., has been seeking to sell 300 billion won to 500 billion won in perpetual bonds to enhance its financial stability.

Bonds of SK On, a battery supplier to Hyundai Motor Co., have not been popular in the local debt market.

Domestic securities firms decided to buy the perpetual bonds for their attractive yield and potential business links with SK Group, South Korea’s second-largest conglomerate.

The group asked the state-run Kora Development Bank earlier this month for more funding as it is set to streamline its business to focus on promising growth engines such as batteries and chips.

SK On’s net debt surged to 15.6 trillion won on a consolidated basis as of end-March from 2.9 trillion won at end-2021. Its debt ratio rose to 188.2% from 166.4% during the period. The battery maker plans to raise 7.5 trillion won this year for capital expenditures.

The company, which has long been in the red, is unlikely to improve its earnings anytime soon as the global EV industry continues to struggle against sluggish demand, industry sources said, although it expects a business turnaround as early as the second half.

Credit rating agencies applied stricter standards to SK On.

“It is necessary to monitor whether financial safety is controlled through implementing various self-rescue measures,” said Korea Ratings Corp., a subsidiary of Fitch Ratings., in May.

Write to Hyun-Ju Jang at blacksea@hankyung.com
 
Jongwoo Cheon edited his article.