Sep 05 - SK Corporation Signs Memorandum of Understanding for Acquisition of Inchon Oil

Source Press Release
Company SK Corporation 
Tags Refining & Marketing Activities
Date September 02, 2005

SK Corporation today signed a memorandum of understanding (MOU) for the acquisition of Inchon Oil Refinery Co. (IOR), one of Korea’s key refineries with production capacity of 275,000 bpd. The outline of the MOU includes purchase of bonds in the amount of 1.6 trillion won and a paid-in capital increase of KRW 1.6 trillion, part of which will be used to pay the creditors. IOR will issue new shares at par value of KRW 5,000. After the acquisition, SK Corp. will have equity ownership of over 90%.

Should the acquisition of IOR become finalized it is expected to solidify SK Corp.’s refining leadership position in Asia Pacific by securing the fourth largest production capacity and enabling the company to better serve the entire region’s energy needs. The expansion of SK Corp.’s refining division complements the company’s burgeoning exploration and production business and other globalization strategies. In addition, the acquisition of IOR can drive tremendous operational synergies through a combination of increased production capacity, improved utilization rates and enhanced export prospects.

This acquisition would significantly enhance SK Corp.’s market position and increase its long-term growth potential going beyond Asia Pacific. SK Corp. views some of the greatest opportunities from this acquisition coming from the Chinese market. The opportunities are primarily driven by China’s explosive demand for energy, but also paired with IOR’s geographic proximity and SK Corp.’s growing capabilities and expanding network in the region, SK Corp. plans to export the majority of IOR’s refined products to China.

According to the plan, the actual payout to creditors is only KRW 800 billion to 900 billion, which is in line with other bidders. The rest of the investment will remain as equity in IOR or be used to stabilize and expand the business. SK Corp. has put forward a comprehensive long-term management plan for IOR, which includes upgrading facilities.

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