As SK Group embarks on a major business rebalancing, there is growing interest in the success of SK Ecoplant’s IPO. SK Group plans to enhance SK Ecoplant’s financial health by integrating financially strong companies into its portfolio. However, this move could significantly reduce the company’s focus on the construction sector.
Industry sources indicate that SK Group is planning a merger between SK Ecoplant and SK Materials Airplus, an in-house independent company of SK Inc. SK Materials Airplus, a manufacturer of industrial gases, is valued at over 1 trillion won. Within SK Ecoplant, SK Materials Airplus is seen as a highly profitable company. According to its 2023 financial report released in April, SK Materials Airplus’s revenue increased by 48 percent to 257.6 billion won, and operating profit rose by 27 percent to 65.3 billion won.
The major obstacle to SK Ecoplant’s IPO has been improving its financial structure. Despite generating 8.9 trillion won in revenue and 174.5 billion won in operating profit last year, SK Ecoplant recorded a net loss of 33.6 billion won. Its short-term borrowings, due within a year, were 1.7 trillion won by the end of the first quarter, significantly up from 596.3 billion won at the end of 2021. Despite investing over 3 trillion won to shift its business focus from construction to environment and energy, excessive M&A activities with environmental subsidiaries have failed to improve its performance.
Recently, SK Ecoplant replaced its CEO to push for a successful IPO. CEO Park Kyung-il stepped down last month before his term ended, with external reports suggesting voluntary resignation, though it is widely seen as a dismissal. The appointment of SK E&S CFO Kim Hyung-keun as the new CEO is interpreted as a strong push towards achieving the IPO.
SK Ecoplant secured a 1 trillion won pre-IPO investment in 2022, setting an IPO deadline of July 2026 with investors. To meet this commitment, the company needs a turnaround in this year’s performance, and merging with a financially strong company could resolve this issue swiftly. Additionally, reducing the construction sector’s proportion is anticipated. Amid a sluggish real estate market, decreasing construction involvement could enhance the company’s valuation. When the company changed its name from SK Construction to SK Ecoplant in 2021, new business areas like environment and energy accounted for only about 15 percent of revenue, which grew to about 34 percent last year. However, construction still generates 66 percent of total revenue, maintaining its dominance in the company’s financial performance.
There are concerns that SK Ecoplant might become a company with an unclear identity, neither a construction nor an environmental firm. Past performance issues were attributed to aggressive M&A strategies, and merging with an unrelated company without solidifying competitiveness in existing industries could be detrimental. An SK Ecoplant representative stated, “Only strategic directions were shared in meetings, and specific details have yet to be decided.”
