S Korea’s SK Innovation revamp neutral to credit ratings – Fitch

13 May 2013 08:19  [Source: ICIS news]

Textile is an important downstream of PX SINGAPORE (ICIS)--South Korean producer SK Innovation (SKI)’s proposed reorganisation is not expected to affect the company’s ‘BBB’ credit ratings, as a direct ownership of the Incheon refinery complex and trading business will facilitate funding for the planned upgrade of the refinery, Fitch Ratings said over the weekend.

“Fitch believes the reorganisation is to facilitate funding for the upgrade of the Incheon complex which will require around [Korean won] W1.6 trillion [$1.45bn] of investments. The upgrade of refinery is expected to materially improve the earnings capacity of this asset,” the rating firm said in a statement.

Fitch’s ‘BBB’ credit rating for SK innovation has a stable outlook.

SKI has announced on 30 April a plan to upgrade the Incheon refinery to an aromatic-focused refinery with a capacity of 1.3m tonnes/year of paraxylene (PX).

The refinery – which currently has two crude units, with a total crude refining capacity of 275,000 bbls/day, and has been running at less than 50% of capacity –  is operated by SK Energy, the 100%-owned refining and marketing subsidiary of SKI.

Under the reorganisation plan, SK Energy will spin off the refinery complex and trading businesses into new entities, which will be wholly owned by SKI, by July this year.

“SKI may finance the capex by involving financial investors in the newly created entity owning Incheon refinery's assets, although no concrete plan has been announced yet,” Fitch said.

SKI’s possible dilution of stakes in the new entities with the entry of potential investors should relieve the company of some capital commitments for the refinery upgrade, the ratings firm said.

SK Global Chemical and SK Lubricants are also subsidiaries of SKI, according to the company’s website.

In the first quarter of 2013, SKI generated W697.5bn in operating profit, down by 5% from the previous corresponding period, with sales dipping 4% year on year to W18,108bn.

Its earnings before interest, tax, depreciation and amortisation (EBITDA) for the period were also down 4% to W853.4bn.

SKI’s first-quarter petrochemical sales volumes slipped 5.4% year on year to 2.05m tonnes, 72% of which were exported. Its petroleum sales, on the other hand, increased 5.4% to 76.9m barrels.

PX sales in the March quarter increased 9.2% year on year to 404,000 tonnes, 82% of which were shipped overseas, according to SKI data.

($1 = W1,105)

By: Pearl Bantillo
+65 6780 4359

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