South Korea’s third largest conglomerate SK Group is moving to shed its shipping business SK Shipping Co. amid worsening financial conditions of the unit and the government’s regulations on intra-affiliate transactions by large business groups.
SK Holdings Co., the holding entity of SK Group, is reportedly seeking to sell a majority of its stake in SK Shipping to local private equity firm Hahn & Co. for an estimated 1.5 trillion won ($1.3 billion), according to sources. An official from the group, however, said on Sunday that it is discussing options to improve the financial status of SK Shipping but nothing has been decided yet.
Industry watchers believe that the group decided to sell the shipping affiliate due to a growing debt burden amid an industry slowdown. Founded in 1982 as Yukong Shipping, SK Shipping was once the nation’s fourth largest container shipper following now-defunct Hanjin Shipping, Hyundai Merchant Marine and STX Pan Ocean during the industry boom until the mid-2000s. However, its financial conditions deteriorated due to a large-scale loan after the global financial crisis. In order to improve financial soundness, it raised about 400 billion won through business restructuring and bond sales but it was far from enough to pay back its debts worth trillions of won.
Another factor driving the planned sale of the shipping unit is the government’s strengthening watch over business groups’ in-house trading, according to industry experts.
The Fair Trade Commission recently proposed to regulate listed units of conglomerates for intra-group deals if family owners hold more than 20 percent stake, down from current 30 percent. Subsidiaries in which the listed firms own more than 50 percent stake would also be subject to the revised rule. SK Shipping’s largest shareholder is SK Holdings which controls 57.22 percent, and the group chairman Chey Tae-won holds a 23.4 percent in the holding entity. As of 2:02 p.m. on Monday, shares of SK Holdings fell 0.7 percent to 285,000 won.