South Korea's Hyundai Oilbank scraps IPO bid as financial market conditions deteriorate

South Korea's smallest oil refiner Hyundai Oilbank has decided to scrap its bid for an initial public offering due to unfavorable financial market conditions, the company's parent Hyundai Heavy Industries Holdings said July 21.

Hyundai Oilbank held a board meeting July 20 and decided to cancel its IPO bid because of worsening equities and fixed income market circumstances, Hyundai Heavy said in a regulatory filing.

"The decision was made because the company's value would not be recognized properly in the current market situation despite its strong performance," the holding company said, referring to lackluster investor confidence and tumbling stock markets.

The refiner posted record high revenue of Won 20.6 trillion ($15.7 billion) in 2021, up 50.5% from a year ago, and a net profit of Won 528.1 billion, a turnaround from 2020's net loss of Won 359.3 billion.

Major South Korean refiners, including SK Innovation, GS Caltex, S-Oil and Hyundai Oilbank, are broadly expected to report stellar second-quarter and Q3 earnings due largely to record high Asian middle distillate cracks and oil product export margins, analysts and industry sources told S&P Global Commodity Insights.

South Korea's benchmark stock index, the Korea Composite Stock Price Index, or KOSPI, has slumped about 20% since the start of 2022, while a rapid rise in US interest rates and US Treasury bond yields has prompted foreign funds to move out of Asian assets to park their money in higher yielding instruments, said fixed income and stock market analysts at KB Financial Group and SK Securities based in Seoul.

Hyundai Oilbank is 73.85% owned by Hyundai Heavy Industries Holdings that runs South Korea's top shipbuilder Hyundai Heavy Industries.

Saudi Arabia's Aramco Overseas Company controls a 17% stake as the second-biggest shareholder, while Hyundai Heavy's Asan Foundation has 0.25%.

Multiple IPO attempts

The refiner had initially pushed for an IPO with an aim to list the company and trade the shares on the main bourse in October or November 2022.

In June 2021, Hyundai Oilbank received a preliminary approval from the Korea Exchange, the country's main bourse operator, for listing on the KOSPI, taking it a step closer to its much-anticipated stock market debut. That was the refiner's third IPO attempt, after aborting listing plans in 2012 and 2019.

Hyundai Oilbank in late 2018 gave up its IPO bid slated for 2019 in the wake of a deal by Hyundai Heavy Industries to offload a 17% stake in Hyundai Oilbank to Saudi Aramco in January 2019 for $1.24 billion.

Hyundai Oilbank rekindled its IPO push in June 2021, driven by improved refining margins with rising oil prices and the refiner's bid to diversify its business portfolio into hydrogen and renewable sources.

The refiner plans to reduce its mainstream oil refining business to 45% of its total revenues by 2030, from 85% currently.

As part of business diversification efforts, the company plans to produce 100,000 mt/year of blue hydrogen by 2025. Blue hydrogen refers to hydrogen produced from fossil fuel in a process that captures carbon dioxide emissions.

It also plans to establish 180 hydrogen fueling stations by 2030 to provide infrastructure for hydrogen mobility.

The company is pushing to build a plant for aviation biofuels at its main complex. Hyundai Oilbank runs two crude distillation units with a combined capacity of 520,000 b/d at the Daesan complex on the country's west coast.

The refiner owns a 60% stake in Hyundai Chemical via a joint venture with local chemical maker Lotte Chemical, which runs a 130,000 b/d condensate splitter.