On the day Hanwha Aerospace announced its plan for a paid-in capital increase, the Financial Supervisory Service (FSS) noted that it "evaluates positively". However, there are criticisms in the market regarding the necessity of the capital increase, as the company is not cash-strapped. Unlike other listed companies that have withdrawn their capital increases, Hanwha Aerospace is expected to pass the FSS review without any issues, leading to increased shareholder backlash.
According to financial authorities on the 24th, Hanwha Aerospace reported the expected timing and size of the capital increase, as well as the general purpose of the funds, to the FSS before announcing the capital increase. This is in light of the FSS’s statement through a press release after Hanwha Aerospace's announcement on the 20th that it could positively assess the capital increase as a necessary step to secure funds for building a leading position in K-defense. It is unusual for regulatory authorities to respond with full support immediately after a listed company announces a capital increase.
The FSS positively evaluated that this is the first paid-in capital increase by Hanwha Aerospace since 1999 and that the intended use of the raised funds is appropriate. Hanwha Aerospace has stated that it will invest 3.6 trillion won through the capital increase in areas such as overseas defense (1.6 trillion won), domestic defense (900 billion won), overseas shipbuilding (800 billion won), and engines for unmanned vehicles (300 billion won). This indicates that there is little room for the FSS to impose restrictions, as they already had prior knowledge of the capital increase size and investment purposes.
If selected for intensive review like Hanwha Aerospace, which follows the general public offering method after shareholder allocation, a significant framework of the review will be released within seven business days. In the case of Hanwha Aerospace, unless the FSS orders a rewrite of the paid-in capital increase plan (securities registration statement) by the 31st of this month, the company will proceed with the capital increase as announced.
The FSS stated, "We will invest review capacity to help the company secure funds quickly according to its planned schedule," leading the market to believe that there will be no requests to amend the securities registration statement. If there are matters to be corrected, it is highly likely that they will be addressed voluntarily by the company.
However, because the reaction from shareholders to the news of the capital increase is not favorable, it is not safe to assume the review will pass easily. One of the FSS’s key review items is the shareholder communication process.
As there was no prior indication, shareholders of Hanwha Aerospace are reacting as if they have been blindsided. One investor commented, "They (the majority stakeholders) want to spend others' money generously while not wanting to spend their own."
The reaction in the Yeouido securities market is also concerning. Lee Ji-ho, a researcher at MERITZ Securities, analyzed that "Hanwha Aerospace's annual investment target does not exceed 2 trillion won, so funding could have been feasible solely based on the company's profits." As of the end of last year, Hanwha Aerospace's current assets amounted to 23 trillion won, with a net profit of 1.038 trillion won. In addition, an EBITDA of about 5 trillion won is expected over the next two years.
Moreover, there is negative sentiment regarding the fact that Hanwha Aerospace spent 1.3 trillion won to acquire 7.3% of Hanwha Ocean's equity before the capital increase. This acquisition is seen as Hanwha Aerospace consolidating scattered shares of Hanwha Ocean among its subsidiaries, interpreted as solidifying succession plans through business restructuring. Lee Dong-heon, a researcher at Shinhan Investment Corp., expressed disappointment regarding the priority of cash flow usage, such as acquiring shares in Hanwha Ocean last month, and the uncertainty surrounding the parent company Hanwha's participation in the capital increase.
Ultimately, the beneficiaries of this capital increase will be the major stakeholders. Had the paid-in capital increase occurred at the end of last year, they likely wouldn't have raised even 2 trillion won, but thanks to Hanwha Aerospace's stock price soaring this year, they are able to gather a record amount of funds.
The issuance price for the paid-in capital increase is calculated based on the arithmetic average of the stock price over the one-week and one-month periods leading up to the third trading day before the new share allocation date or the starting date for existing shareholders' subscription, and an arithmetic average of the closing price on the start date.
Applying a 15% discount based on the stock price at the end of last year, the issuance price presented by Hanwha Aerospace amounts to 288,000 won. This is less than half of the anticipated issuance price of 605,000 won. For major stakeholders, the current rise in stock price indicates a favorable time for the paid-in capital increase.
The FSS commented, "Please view the stance released immediately after the announcement and the review results as separate," and stated that it is currently reviewing specific matters, such as investment risks, included in the securities registration statement.