In early trading on the 1st, HD Hyundai Heavy Industries is plunging 6%. Investor sentiment appears to have weakened on news that HD Korea Shipbuilding & Offshore Engineering, the intermediate holding company, will issue a large exchangeable bond (EB) backed by shares of HD Hyundai Heavy Industries.
An EB is a bond with the right to exchange it for shares held by the company.
As of 9:43 a.m. that day on the Korea Exchange, HD Hyundai Heavy Industries is trading at 435,500 won, down 29,500 won (6.34%) from the previous session. At the same time, HD Korea Shipbuilding & Offshore Engineering is trading at 357,000 won, up 13,000 won (3.78%) from the previous session.
The previous day, HD Korea Shipbuilding & Offshore Engineering disclosed the issuance of $2 billion (about 3 trillion won) in EBs backed by HD Hyundai Heavy Industries shares as the underlying asset. The number of shares subject to exchange is 5,613,704, equivalent to 5.35% equity. The exchange price will be set in a range of 112.5% to 117.5% of the previous closing price. The exchangeable bonds will be listed on the Singapore Exchange, and the exchange right can be exercised starting June 14.
The funds raised will be used 1.5 trillion won each for operating capital and investments in other companies. HD Korea Shipbuilding & Offshore Engineering plans to use the secured funds to expand its eco-friendly ship business, increase production facilities at overseas shipyards, develop next-generation energy businesses such as small modular reactors (SMR), Hydrogen Fuel Cell, and offshore wind power, and promote the Korea-U.S. shipbuilding cooperation project "MASGA."
There are expectations that this financing will improve HD Korea Shipbuilding & Offshore Engineering's financial structure, but analysts say that for HD Hyundai Heavy Industries, the highlighted possibility of future exchange-driven share supply is acting as downward pressure on the stock price.
Byun Yong-jin, an analyst at iM Securities, said, "This event is meaningful in that the company has secured funding for overseas shipyard investments it had previously outlined, and it could make this a year of full-fledged expansion," but added, "It is regrettable that the company chose to issue EBs, which can put downward pressure on the stock price, even though urgent financing was not necessary."