"Startup Mou Form"
[Attachment] Disclosure on Acquisition of Inchon Oil Refinery 2005. 9. 2 SK Corporation Disclaimer This material has been prepared by SK Corporation for distribution to its shareholders and investors solely for the purpose of providing information in respect of the current status of the acquisition of the Inchon Oil Refinery that is being conducted pursuant to the Public Bidding Procedures. SK Corporation has been selected as a preferred bidder in respect of the aforementioned bid for the acquisition of the Inchon Oil Refinery, and the terms and conditions of the acquisition may be adjusted following the company’s detailed due diligence and negotiations for the definitive agreement. SK Corporation makes no representation whatsoever as to the accuracy or completeness (or otherwise) of the information contained in this material, and herby specifically and expressly disclaims any and all liability for any loss or damage you (including shareholders, investors and any other person or entity) may suffer relating to or in reliance upon it. You (including shareholders, investors and any other person or entity) are responsible for making your own independent inquiry, investigation, analysis and decision, and SK Corporation makes no representation whatsoever relating to the future plans, inferences, prospects, profitability or appropriateness in connection therewith. This material must not be relied upon in connection with any investment, and cannot be used in any action, arbitration, audit, hearing, investigation, litigation or suit as evidence in connection therewith. 1. Purpose of Acquisition Increase SK Corporation’s value by securing platform for growth, realizing synergies, and strengthening competitiveness Develop into a major player in the Asia-Pacific region by achieving economies of scale Broaden market influence in the Asia-Pacific region and strengthen international negotiating Secure Platform power for Growth Increase the profitability of Petroleum/Petrochemical businesses and boost Exploration & Production business performance Expand business operations by forming joint ventures with China and Middle-Eastern oil-producing countries Create synergies by applying SK Corp.’s industry expertise to IOR* Oil purchasing/trading (increase in economic benefits): Gain leverage in oil purchasing Realize power/export product pricing through enhancement of production capacity/influence Synergies Production: Optimize structural organization of facilities, improve both existing facilities and operational efficiency Achieve cost-savings via the increase in efficiency through the integration of logistics (distribution/transportation) Increase competitiveness through quick normalization of IOR Provide a swift solution against shortage of refinery facilities in the region caused by a Strengthen rise in demand for refined products in countries such as China and India Competitiveness Strengthen competitiveness by upgrading facilities - Increase production/export sales volume of light distillates 2 * IOR = Inchon Oil Refinery 2. Acquisition Amount Paid-in Capital: 1.6 trn KRW (5,000 KRW/share, SK Corp.: over 90% share of IOR) Underwriting of Corporate Bonds: 1.6 trn KRW (interest rate: 6%/year) • Upon the approval of the court, the timing of the issuance of corporate bonds and the terms thereof will be mutually consulted, taking into account the capital requirements, the long- and short-term investment plans and the future cash needs of the company The remainder of the total acquisition cost (after the repayment of debts) will stay in IOR in the form of internal cash • The amount of debt to be repaid as stated in the B/S (value as of March 31, 2005): 639.744 bn KRW • The aggregate amount of debt to be repaid pursuant to the original reorganization plan of IOR (as of March 31, 2005): 876.122 bn KRW • The aggregate amount to be paid in respect of the unsettled and/or pending liabilities is estimated to be approx. 30 bn KRW at the maximum (internal estimation) The remainder of the total acquisition cost (after the repayment of debts) will stay in IOR as internal cash, and will be used by IOR accordingly to strengthen competitiveness and improve financial structure. SK Corp. has been selected as a preferred bidder. The final acquisition cost and final debt to be repaid to creditors will be confirmed only after the completion of detailed due diligence, execution of the definitive agreement, and obtainment of the necessary court approvals, etc. 3 3. Investment Value EBIDTA Multiple, DCF Valuation: Approx. 0.9 trn KRW (internal estimation) IOR Value Replacement Cost: Approx. 2.8 trn KRW 1. Oil purchasing (higher economic value): Benefit from SK’s oil purchasing networks, better credit ratings, and economies of scale 2. Recover IOR’s export competitiveness: Utilize SK’s overseas networks to boost profitability 3. Increase efficiency of IOR’s production: Improve efficiency of CDU and Synergy facilities/technical process Value 4. Enhanced export prospects for Petrochemical business (BTX): Increase export product price and sales volume, expand target markets 5. Improve trading capabilities: Strengthen overseas market competitiveness through increase in sales volume and economies of scale 6. Save costs in all areas such as transportation, distribution, and R&D through the integration of logistics Secure status as a major player in the Asia-Pacific region Strategic Value Solidify export competitiveness/market influence to become a global player 4