SK seeks to divest overseas units acquired from Dow Chemical, Arkema

SK Geo Centric Co. is approaching foreign petrochemical companies to sell the overseas units it acquired from Dow Chemical and France’s Arkema in a bundled deal as parent SK Group accelerates restructuring efforts to secure fresh capital, according to investment banking sources on Monday.

The unit of SK Innovation Co. has put up for sale the functional polyolefin business it purchased from Arkema for 440 billion won ($317 million) in 2020, along with the ethylene acrylic acid (EAA) and poly vinylidene chloride (PVDC) businesses it bought from Dow Chemical for a combined 476.7 billion won in 2017.

Polyolefin is widely used for food packaging, cables, electronics and coatings. EAA serves as an adhesive in packaging materials such as foil and paper, while PVDC is used to produce clear, barrier film packaging.

The deals represented SK Innovation’s first cross-border acquisitions of US and European assets, reflecting the group’s ambition to become a leader in the eco-friendly and high-value packaging markets.

The polyolefin business benefited from a surge in food and beverage demand during COVID-19. However, it has since come under pressure from oversupply built up during the pandemic and intensifying competition from Chinese rivals.

In 2021 and 2022, the business posted an operating profit of 38.8 billion won and 36.5 billion won, respectively, against sales of 415.0 billion won and 507.2 billion won.

However, the unit turned to the red in 2023 and 2024, reporting an operating loss of 14.4 billion won and 20.5 billion won, respectively.

Industry observers said that SK Geo's EAA and PVDC businesses generated steady profit growth during the pandemic before facing similar headwinds, though their recent financial performance has not been disclosed.

SK Geo has also struggled with post-merger integration, dealing with overseas plants and employees, as well as challenges in operations management and investment decisions. 

DRASTIC RESTRUCTURING FOR PETROCHEMICAL FIRMS

SK Geo, formerly SK Global Chemical, is also in talks to sell its naphtha cracking center in Ulsan, South Gyeongsang Province to Korea Petrochemical Ind. Co. 

The move comes as the government urged domestic petrochemical companies to carry out sweeping restructuring, including up to 25% cuts to their naphtha cracking capacity.

The potential divestment of the assets acquired from Arkema and Dow Chemical marks the latest step in SK Group’s restructuring drive as South Korea’s second-largest conglomerate has been reeling from a prolonged downturn in the petrochemical industry and a slower-than-expected electric vehicle uptake.

In 2024, SK Innovation merged with liquefied natural gas supplier SK E&S Co. It recently announced a merger between battery maker SK On Co. and lubricant producer SK Enmove Co.

SK Innovation holds an 87% stake in SK On and owns 70% of SK Enmove.

SK On absorbed SK Trading International Co. in 2024 and took over SK Enterm Co., an operator of storage tanks and dock facilities for crude oil and petrochemical products, early this year.

SK Group has recently cashed out its entire 6.05% stake in Vingroup, Vietnam’s largest conglomerate, for more than 1.3 trillion won, while in advanced talks to offload the waste management arm of SK Ecoplant Co. to private equity giant KKR & Co.

In the April-June quarter, SK Innovation's losses widened to 417.6 billion won from 45.8 billion won shortfalls the year prior.

In the first half, the company swung to losses of 462.2 billion won versus an operating profit of 578.9 billion won in the same period of last year.

Write to Jun-Ho Cha at chacha@hankyung.com

Yeonhee Kim edited this article.