[Edaily Marketin YunJi Kim Reporter] Following the collapse of SK Shipping’s sale, Han & Company—which has embarked on further value-enhancement efforts—is boldly divesting its tanker business and significantly expanding its focus on liquefied natural gas (LNG) carriers.

The strategy involves focusing on LNG carriers with long-term contracts to restructure the company’s business model from a “general shipping company subject to significant economic volatility” to a “specialized gas carrier generating stable cash flow.” Once the deal is finalized, SK Shipping is expected to rise to become one of the world’s top three or four LNG carriers.

Shedding Non-Core Fleet to Strengthen LNG Operations… Long-Term Contracts Are Key

According to investment banking (IB) industry sources on the 15th, SK Shipping is pursuing a deal to acquire 16 LNG carriers from H-Line Shipping in exchange for 11 very large crude carriers (VLCCs) and one medium-range (MR) product tanker. The long-term shipping contracts and ship financing associated with the vessels will also be transferred, and any difference in asset value will be settled in cash.

Both SK Shipping and H-Line Shipping have special purpose companies (SPCs) established by Han&Co as their largest shareholders. In effect, this transaction represents Han&Co’s realignment of the fleets of its two portfolio companies. Previously, in February, SK Shipping agreed to sell 10 VLCCs to Pan Ocean, and once this latest transaction is finalized, it will completely withdraw from the tanker business.

This fleet restructuring is seen as an additional value-enhancement strategy pursued after sale negotiations with HMM broke down. Han&Co had been pursuing the sale of SK Shipping since 2024 and selected HMM as the preferred bidder for the sale of certain business units in February of last year, but negotiations failed to conclude due to disagreements over price and the scope of the acquisition.

Since the sale fell through, Han & Co. has been divesting non-core vessels, such as tankers, and restructuring its business to focus on LNG carriers. Once this transaction is finalized, SK Shipping’s fleet of LNG carriers will double from 16 to 32 vessels. Including 14 LPG carriers, gas carriers will account for 46 of the total fleet of 54 vessels. This marks a shift in focus from a general shipping company to a specialized gas carrier operator centered on LNG and LPG.

The key to this transaction lies in the long-term contracts tied to the vessels. The 16 LNG carriers SK Shipping is acquiring are backed by time charter contracts signed with top-tier shippers such as Vitol, Exxon, Petronas, and Qatar Energy. Most of these contracts extend through 2035 and beyond.

Unlike spot operations, where freight rates fluctuate significantly depending on market conditions, long-term contracts offer the advantage of guaranteed freight revenue for the contract period and the ability to factor in cost fluctuations—such as fuel expenses and vessel investment costs—into the freight rates. While revenue may decrease due to the sale of tankers, analysts predict that profitability and earnings stability will improve by securing relatively high-margin LNG carriers and long-term cash flows.

Debt-to-Equity Ratio Drops from 2,540% to 482%… Transforming into a Transportation Infrastructure-Type Carrier

Since the actual acquisition, Han & Co. has continuously increased the proportion of long-term contracts. According to industry sources, the share of long-term contracts (five years or more) in SK Shipping’s total revenue rose from 70% in 2018 to 87% by the end of 2024. It is assessed that by reducing dependence on spot rates and securing contract-based cash flow in the shipping industry—a sector highly sensitive to economic cycles—SK Shipping has effectively transformed its structure into one closer to that of a transportation infrastructure company.

This structural improvement is also reflected in the company’s financial performance. Han&Co acquired SK Shipping in 2018 by investing a total of 1.5 trillion won—including a 1 trillion won rights offering and 500 billion won in convertible bonds—at a time when SK Shipping’s debt-to-equity ratio stood at 2,540%. Furthermore, following the acquisition, the company reduced spot operations and expanded long-term contracts, while diversifying its client base—which had previously been concentrated among SK Group affiliates—to include Korea Gas Corporation, state-owned power generation companies, and overseas energy firms. As a result, the debt-to-equity ratio fell to 481.7% as of the end of last year.

However, there are concerns that this transaction could increase short-term financial burdens. Since the LNG carriers being transferred to SK Shipping have higher purchase prices than tankers and involve larger-scale ship financing, there is a possibility that net cash outflows and debt burdens will increase after the transaction is finalized. As of the end of last year, SK Shipping’s total debt stood at 6.3925 trillion won.

Nevertheless, the EBITDA generated from long-term contracts and the proceeds from the sale of VLCCs to Pan Ocean are expected to partially offset this burden. EBITDA—earnings before interest, taxes, depreciation, and amortization—is a key financial indicator that reflects a company’s “cash-generating ability,” or the actual cash it earns through its operating activities.

NICE Credit Rating also assessed that while SK Shipping’s financial metrics may deteriorate in the short term due to increased ship financing, the immediate impact on its creditworthiness will be limited given the profitability of its long-term LNG contracts.

The market views SK Shipping’s streamlining of its business structure as likely to have a positive effect on its future enterprise value and divestiture prospects. This is because LNG carriers operating on long-term contracts are likely to be rated more highly in terms of earnings predictability and cash flow than general shipping companies, which are sensitive to economic cycles and fluctuations in freight rates.

An investment banking industry official stated, “Han & Co. is focusing on improving the quality of SK Shipping’s EBITDA rather than its revenue scale,” adding, “By divesting its tanker fleet and concentrating on LNG, the company is transforming its business structure into one that is closer to energy transportation infrastructure.”