[E-Daily Reporter Kim Hyung-il ] As SKGas(018670)merges with SK Advanced, which has posted operating losses for four consecutive years, opinions are divided regarding the move from a shareholder value perspective. While some predict that directly managing SK Advanced—which specializes in the propane dehydrogenation (PDH) business, where there are concerns about structural oversupply—could lead to a decline in earnings per share (EPS) and dividends per share (DPS), others analyze that reducing interest expenses by lowering borrowing rates based on SKGas’s creditworthiness could ultimately improve shareholder value.

According to the Financial Supervisory Service’s electronic disclosure system on the 28th, SKGas announced on the 27th that it would merge with SK Advanced through an absorption merger. The merger date is set for November 4, with SKGas remaining as the surviving entity and SK Advanced being dissolved. The merger ratio is 1:0, and it will be conducted as a merger without a capital increase, meaning no new shares will be issued. Since SKGas, together with its subsidiary SK Gas Petrochemical, holds a 100% stake in SK Advanced, there will be no dilution of ownership resulting from the merger.

However, opinions are divided regarding the outlook for shareholder value. Some in the securities industry point out that while the effects of the merger will be limited—since SK Advanced’s earnings are already reflected in SKGas’s consolidated financial statements—it could weigh on EPS and DPS, as SKGas, as the surviving company, will directly bear the earnings volatility of the PDH business. Last year, SKGas posted an EPS of 25,453 won and a DPS of 9,000 won.

The securities industry’s negative view of the PDH business stems from China’s large-scale capacity expansions. PDH is a process that produces propylene by removing hydrogen from propane (LPG). Propylene, along with ethylene, is a key raw material in the petrochemical industry and is used in a wide range of products, including automotive parts, resins, electronic devices, and textiles. While demand has been steadily increasing in line with the growth of related industries, concerns about oversupply are mounting as production capacity expands rapidly, particularly in China.

Because SK Advanced has focused on the PDH business—where concerns about oversupply are mounting—it posted operating losses of 129 billion won in 2022, 82.5 billion won in 2023, and 116.1 billion won in 2024, followed by a loss of 140 billion won last year. Although the company returned to profitability in the first half of this year with an operating profit of 40.4 billion won, securities analysts note that it is uncertain whether this trend will continue in the long term, as the improvement in market conditions was largely driven by the aftermath of the conflict between the U.S. and Iran.

On the other hand, the financial synergies highlighted by SKGas are receiving positive evaluations. This is because SKGas’s creditworthiness can be leveraged to lower SK Advanced’s borrowing rates and reduce interest expenses. SKGas’s corporate bond credit rating is AA-, which is higher than that of SK Advanced (BBB–BBB+).

Once the merger is completed, SK Advanced’s debt will be transferred to the surviving entity, SKGas, creating an opportunity to lower financing costs based on SKGas’s high creditworthiness. In fact, while NICE Credit Rating and Korea Credit Rating maintained SK Advanced’s credit ratings at BBB+ and BBB, respectively, they both placed the company on “positive watch” to reflect the debt transfer resulting from the merger. According to the credit rating industry, SK Advanced’s total debt as of the second quarter of this year stood at 475.8 billion won, with a debt-to-equity ratio of 338.3% and a debt dependency ratio of 55.6%.

A securities industry official stated, “While the market had previously discussed the possibility of an early sale or business liquidation of SK Advanced, this merger has somewhat diminished such expectations,” adding, “Since SKGas has decided to continue reaping synergies from the PDH and propane businesses, this will be positive if market conditions improve in the future; however, if the business environment deteriorates again, SKGas will have to shoulder that burden directly.”