SK Ecoplant set to sell waste and water treatment units to KKR in $1.2 billion deal

SK Group is set to offload the waste management and water treatment arms of its construction affiliate, SK Ecoplant Co., to US private equity firm KKR & Co. Inc. as the South Korean conglomerate moves to sell non-core, unprofitable assets and focus on growth drivers such as semiconductors and advanced technologies.

SK Ecoplant will convene a board meeting on Tuesday to approve the sale of its 75% stake in water-treatment provider Renewus Co. and 100% of waste processor Renewon Co. to KKR, people familiar with the matter said on Monday.

The value of the two units’ stakes wasn’t known, but the two waste treatment firms’ corporate values are said to be worth a combined 1.7 trillion won ($1.2 billion).

SK Group initially sought about 2.5 trillion won. With tepid interest in the auction and KKR offering the highest bid, however, SK Ecoplant lowered its expectations to the mid-1 trillion won range, according to sources.

Rival bidder STIC Investments Inc. exited the process early, leaving KKR as the frontrunner.

KKR’S INTEREST IN THE KOREAN WATER WASTE TREATMENT MARKET

KKR, regarded as having one of the deepest understandings of Korea’s fragmented waste and water markets among foreign buyout groups, is expected to expand its domestic footprint through the acquisition.

The deal has been led by Kim Yang-han, a partner overseeing KKR’s Asia-Pacific infrastructure investments.

The executive, also known by his English name Keith Kim, previously spearheaded KKR’s 2.4 trillion won investment in SK E&S Co. and the joint launch of Ecorbit Co., Korea’s largest waste management company, with Taeyoung Group. KKR sold Ecorbit to a consortium of IMM Private Equity and IMM Investment earlier this year for about 2 trillion won.

In 2020, SK Ecoplant acquired Korea’s largest waste treatment company, EMC Holdings Co., now Renewus, for 1.5 trillion won from Affirma Capital, outbidding Goldman Sachs and Keppel Infrastructure.

Between 2021 and 2022, it spent another 825.6 billion won to buy multiple local waste incineration and landfill companies, including Daewon Green Energy and Saehan, and merged them under Renewone.

With the waste management subsidiaries, SK Ecoplant planned to transform into a climate platform company.

But its effort to create synergy between the environmental business and its other mainstay businesses – construction, engineering and energy – has not paid off.

Instead, it has faced an increasing interest burden from aggressive mergers and acquisitions of environmental companies.

SHEDDING NON-CORE ASSETS TO FOCUS ON CHIPS, IT SECTOR

Last year SK Ecoplant posted consolidated revenue of 9.3 trillion won, up 8.2% from the previous year, and operating profit of 234.6 billion won, a 49% increase. However, its net loss widened to 95.8 billion won from 45.6 billion won, weighed down by weak results at Renewus and Renewon, which recorded net losses of 30.5 billion won and 98.9 billion won, respectively.

Following the exit from waste management, SK Ecoplant intends to shift its focus to semiconductor infrastructure and IT recycling businesses, centered on SK Tes and Essencore Ltd.

SK Tes, which SK Ecoplant acquired in 2022, specializes in IT asset disposition (ITAD) and electronic waste recycling – a sector gaining momentum amid growing artificial intelligence-related data center demand.

ITAD services encompass secure disposal and reuse of unwanted IT hardware, aligned with rising corporate and environmental compliance standards.

Essencore, headquartered in Hong Kong, is a consumer memory and storage maker, producing SD cards and USB flash drives with DRAM and NAND flash memory chips supplied by SK Hynix Inc., SK Group’s semiconductor giant.

Last year, SK Ecoplant set up a new business unit called Hi-tech, a comprehensive semiconductor service provider, including the construction of semiconductor infrastructure, after merging technology subsidiaries.

SK ECOPLANT SEES 2026 IPO

Other non-core asset divestments are also under consideration, including the sale of a 37.6% stake in SK Oceanplant, which makes offshore wind structures, and the spin-off of certain industrial gas and carbon capture units from affiliate SK Airplus.

SK Ecoplant, which raised about 1 trillion won from pre-IPO rounds in 2021 and 2022, has pledged to financial investors that it will pursue a listing on the Korean stock market by 2026.

Streamlining its balance sheet is a prerequisite, sources said.

Write to Da-Eun Choi and Jun-Ho Cha at max@hankyung.com

In-Soo Nam edited this article.