이 기사는 2021년 04월 14일 07:32 thebell 에 표출된 기사입니다.

SK Innovation will shoulder higher financial burden in the short-term after it agreed to pay 2 trillion won ($1.78 billion) to settle its battery dispute with local rival LG Energy Solution (LGES) amid already poor financial soundness.

The two companies agreed to drop all lawsuits filed both in Korea and in the U.S., and pledged not to lodge any additional suits over the next decade. Of the 2 trillion won in settlement money, 1 trillion won will be paid in cash compensation while the remaining 1 trillion won will be paid in royalties.

SK Innovation’s financial statement has deteriorated significantly amid poor operating performance. The company’s debt ratio was 149% at the end of 2020, with net debt/earnings before interest, taxes, depreciation and amortization stood at negative (-) 8.2 times. Free cash flow has been in the negative territory over the past three years.

To reflect the situation, NICE Investors Service and Korea Investors Service downgraded SK Innovation’s credit ratings by one notch from ‘AA+/negative’ to ‘AA0/stable.’ Korea Ratings has maintained its rating at ‘AA+/negative.’

Given that SK Innovation's investment in its battery business will be back to normal through the agreement, the mid- to long-term investment burden is also expected to become visible. SK Innovation has invested nearly 3 trillion won in its plant in Georgia, U.S. and plans to invest around 3 trillion won between 2021 and 2022.

The fact that SK Innovation will pay 1 trillion won of cash compensation over the next two years will reduce financial burden on the company. It will also pay 1~1.75% of its global annual battery sales as royalties from 2023.

SK Innovation will secure 2~3 trillion won in the first half of this year – more than 1 trillion won through an initial public offering (IPO) of its subsidiary SK IE Technology (SKIET) in May and 1.2 trillion won by offloading its assets including Peruvian gas fields. However, it has to be seen whether its plans will go smoothly as expected.

“SK Innovation is reviewing various financial structure improvement plans, including SKIET’s IPO, but its fund inflow may fluctuate,” said an official at a credit rating firm. “So we have to keep monitoring the company in the future.”

Risk of litigation resolved

The settlement is regarded as a positive factor for SK Innovation’s credit rating as a litigation risk has been resolved. The litigation risk has remained a potential uncertainty, with SK Innovation trying to transform itself from an energy company to a battery maker.

Rebounding battery industry is also considered a positive factor, with major domestic companies’ battery businesses started to record profits since the second half of last year. SK Innovation may swing to profits as early as next year.

The settlement has also allowed SK Innovation to supply batteries to its clients including Volkswagen and Ford as planned and keep its battery plants in Georgia.

However, there are some challenges ahead, with car companies including Volkswagen announcing that it would internalize battery production. Competition is also intense, with Chinese battery firms advancing into the U.S. market to supply batteries to Volkswagen. (Reporting by Suk-cheol Choi)