SK ie technology to be absorbed by SK Innovation... A-rated bonds likely to move toward 'AA' status [fn Market Watch]

[Financial News] The decision by SK Innovation and SK ie technology (SKIET) to merge is set to affect SKIET's credit profile as well. Once the merger is completed, the corporate bonds and commercial paper (CP) issued by SKIET will be transferred to the surviving entity, SK Innovation, raising the current A-grade credit rating to an effective AA level.
On the 26th, NICE Investors Service placed SK ie technology's long-term credit rating of 'A-' and short-term rating of 'A2-' on a watch list for possible upgrade. The surviving company, SK Innovation, has a higher rating than SKIET, with a long-term rating of 'AA' and a short-term rating of 'A1'.
Lee Young-kyu, a researcher at NICE Investors Service, said, "We took into account that, under the absorption merger, SK ie technology's corporate bonds and commercial paper will be transferred to the surviving company, SK Innovation, and will therefore be subject to SK Innovation's credit rating." After the merger date, once the SKIET entity disappears, its existing credit ratings will also be canceled.
SK Innovation decided the previous day to absorb SKIET. The move is aimed at preemptively easing business and financial risks and improving operating efficiency and the competitiveness of the separator business through a restructuring of the business portfolio.
The merger ratio is 1 to 0.117454, meaning one common share of SKIET will be exchanged for 0.117454 common shares of SK Innovation. The merger agreement was signed on the 26th, SKIET's shareholders' meeting is scheduled for Nov. 24, and the merger date is Jan. 1 next year.
For SKIET bondholders, the merger has a clear credit-positive effect, since the debt of an A-grade issuer will be succeeded by SK Innovation, which carries an AA rating. By contrast, SK Innovation's own credit profile is expected to remain largely unchanged, as SKIET is already a consolidated subsidiary and its results and financial position are reflected in the consolidated statements.
The key variable for the merger's completion is the stock purchase demand right held by SKIET shareholders. Because the deal is structured as a small-scale merger, SK Innovation shareholders are not granted that right, but SKIET shareholders may exercise it if they oppose the merger. If the amount exercised exceeds 350 billion won, the merger agreement could be terminated.
[email protected] Kim Hyun-jung Reporter