SK Group, Korea’s third largest chaebol, is backpedaling in its overseas energy projects because of the incarceration of its chief

2014-02-02 18:18

CEO risk weighs on SK future

By Choi Kyong-ae
SK Group is backpedaling in its overseas energy projects because of the incarceration of its chief.
In the latest example, SK Energy, an affiliate of SK Group, pulled out of the final bid to acquire a controlling stake worth up to 1 trillion won in United Petroleum, an Australian oil company. This was widely seen as the conglomerate’s failure to make concrete investment decisions amidst its current leadership vacuum.
In a regulatory filing last month, the energy affiliate made its withdrawal public.
“We reached the decision due to high bidding prices and uncertainties surrounding management control after purchase,” an SK Group official said by phone. “It has also something to do with the chairman’s absence.”
Chey Tae-won, chairman of the conglomerate, has been in jail since late January last year after the 54-year-old was found guilty of embezzlement, which analysts say will have a growing impact on the company’s overseas businesses.
Chey was sentenced to four years in jail which will last through 2017 for inappropriately spending 46.5 billion won ($43 million) of company funds to cover stock futures and options investment losses in collusion with his younger brother Chey Jae-won, vice chairman of the country’s third-largest conglomerate by assets.
“Among others, overseas exploration and production projects have taken the brunt of the absence of the company’s top decision maker,” Lee Hoon, an analyst at Korea Investment & Securities, said by telephone.
The fact that the chairman is behind bars is already “having a negative effect on the company’s efforts to win orders to expand its ongoing projects and to make large-scale investments to acquire companies,” Lee added.
In particular, the chairman’s absence is holding back the company’s broader plan to expand into Latin American markets.
In 2011, SK Innovation raised $2.4 billion from the sale of its entire stake in three Brazilian oil blocks. But “the company has yet to find a place where it can invest the money,” the SK official said. SK Innovation is the country’s biggest refiner by capacity.
SK Group has focused on Latin America since its affiliate SK Innovation entered Peru in 1996 to invest in an oil-field development project. The Peruvian oil block is now generating profit, according to the company.
“To further promote Peruvian oil exploration projects, the chairman’s hands-on management is badly needed,” KB Securities analyst Byun Han-joon said.
The company said it has been involved in an exploration project of an oil block in Colombia since 2012 though the project has so far not yielded any tangible outcome.
In terms of the Mexican market, which recently opened up to multinational investors, Byun said “SK is the strongest candidate in Korea to compete with global rivals due to its sizable capital and advanced technology.”
However, he said the company “may cancel or postpone key decisions on energy projects at least for the coming four years.”
Due to the setback, SK Innovation’s net profit based on a consolidated basis fell 41 percent to 302 billion won in the third quarter of last year from 510 billion won a year earlier.
The company which wholly owns SK Energy saw its operating profit plunge by 64 percent to 316 billion won from 883 billion won during the same period. Sales also declined 14 percent to 15.86 trillion won from 18.46 trillion won.