May 01, 2024

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SK Rent-a-Car's certified used car purchasing center located in Hwaseong, Gyeonggi Province (SK Rent-a-Car)

SK Networks has chosen Affinity Equity Partners, a private equity fund headquartered in Hong Kong, as its preferred bidder for the sale of its ownership stake in SK Rent-a-Car, the nation's No. 2 rental car service company.

SK Networks intends to divest all of its shares in an estimated deal worth some 850 billion won ($613 million). Both parties plan to conduct due diligence before finalizing the contract, SK Networks said in a regulatory filing Tuesday.

Following the merger of AJ Rent-a-Car with SK Networks' rental car business in 2019, SK Rent-a-Car quickly became the second largest player in Korea's car rental market, trailing only Lotte Rental. At the time, SK Networks purchased a 42 percent stake in AJ Rent-a-Car for 300 billion won and rebranded to SK Rent-A-Car a year later.

Last year, SK Rent-a-Car reported consolidated sales of 1.4 trillion won and an operating profit of 122 billion won, marking respective increases of 12.5 percent and 28.3 percent compared to the previous year. The annual operating profit represents nearly half of SK Networks' total operating profit, which amounts to 237.3 billion won.

Industry experts analyze that SK Networks intends to accelerate the advancement of AI-focused business models and pinpoint fresh avenues for new growth through the upcoming divestment of its car rental business.

Such intention was also mapped out during SK Networks' shareholders meeting in March, when the firm's CEO Lee Ho-jeong unveiled the company's aspiration to "actualize vision as an AI company" by integrating AI into current operations.

Meanwhile, the impending transaction is also viewed as part of SK Group's efforts to enhance liquidity, as the conglomerate has been streamlining its portfolio, particularly around non-core assets.

In January, SK Networks sold the business rights of three flagship products from its subsidiary SK Magic — the gas stove, microwave and electric oven — to KD Navien for 40 billion won.

In the same month, the company invested 25 billion won in Upstage, a startup specializing in large-scale language models for tailored search services. Last year, it acquired a data management and solutions company, Encore.

As for SK Rent-a-Car, despite its endeavors to leverage synergies with entities like the US car-sharing startup Turo or SK Square's T-Map, such efforts have ultimately been unsuccessful over time.

Meanwhile, Affinity is known for its long-term investment approach and successful deals such as selling Oriental Brewery to AB InBev in 2014, and the food delivery platform Yogiyo to GS Retail-led consortium in 2021.

The potential buyout marks the first investment led by Affinity's partner Min Byung-chul after the departures of its founder Park Young-taeg and managing partner Lee Chul-joo last year.

Established in 2004 as a spin-off from UBS Capital Asia Pacific, Affinity operates across the Asia-Pacific region, with offices in Seoul, Singapore, Hong Kong and Sydney.

By Kim Hae-yeon (hykim@heraldcorp.com)
The Korea Herald