Hanwha Aerospace has decided to issue new shares worth 3.6 trillion won, prompting some shareholders to express their frustration, claiming they feel betrayed. Last month, Hanwha Aerospace stated that capital procurement was unnecessary after acquiring a stake in Hanwha Ocean. However, just a month later, they announced a large-scale capital increase, accusing them of changing their stance.
According to the Financial Supervisory Service's electronic disclosure on the 21st, Hanwha Aerospace announced the largest-ever plan for a capital increase, amounting to 3.6 trillion won, the previous day. Hanwha Aerospace stated that it would invest the funds secured from the capital increase into overseas defense projects worth 1.6 trillion won, domestic defense projects worth 900 billion won, overseas shipbuilding projects worth 800 billion won, and unmanned aerial vehicle engines worth 300 billion won.
On the 9th of last month, Hanwha Aerospace announced its plan to acquire 7.3% equity in Hanwha Ocean, held by its affiliates Hanwha Impact Partners and Hanwha Energy, for approximately 1.3 trillion won. Han Sang-yoon, executive director in charge of investor relations at Hanwha Aerospace, responded the following day, October 10, to a question about how the funds for the equity acquisition would be secured, stating that "the cash reserves and operating cash flows are sufficient without capital procurement."
Hanwha Aerospace has taken the position that the funds raised from this capital increase will not be used for the acquisition of Hanwha Ocean equity. However, shareholders argue that the scale of the capital increase has increased due to the reduction of cash through the acquisition of Hanwha Ocean equity. One week after saying, "The cash reserves and cash flows are sufficient," Hanwha Aerospace began corporate due diligence procedures with joint lead underwriters NH Investment & Securities and Korea Investment & Securities on the 19th of last month.
Hanwha Energy and Hanwha Impact, which acquired a stake in Hanwha Ocean, are affiliates with a high equity ownership by the founding family. Hanwha Energy is effectively a family company, with Kim Dong-kwan (the vice chairman), Kim Dong-won (the president), and Kim Dong-sun (the vice president) owning 100% of the equity, as they are the three sons of Chairman Kim Seung-yeon. The shareholders of Hanwha Impact are Hanwha Energy (52.1%) and Hanwha Solutions (47.9%).
As a result, Hanwha Aerospace is using nearly 1.3 trillion won, equivalent to last year's annual operating cash flow (approximately 1.4 trillion won), to purchase equity in Hanwha Ocean held by the founding family, while reaching out to shareholders for funding for business investments. A Hanwha Aerospace representative stated, "This capital increase is not being conducted because of the acquisition of Hanwha Ocean equity. We are raising funds to increase aggressive investments for securing overseas bases and so on."
The market recognizes that Hanwha Aerospace needs to establish overseas bases. The demand for defense has increased due to the rearmament of the European Union, and there will be no large-scale weapon system projects in the domestic market for the time being.
However, many evaluations express disappointment regarding the scale of the capital increase. Hanwha Aerospace plans to implement the 3.6 trillion won raised from the capital increase over the next four years, until 2028. Given that Hanwha Aerospace’s operating profit is expected to exceed 2 trillion won annually, there are projections that they could accommodate investments with their own funds.
Seo Jae-ho, a researcher at DB Financial Investment, noted, "Hanwha Aerospace is expected to generate about 5 trillion won in EBITDA (earnings before interest, taxes, depreciation, and amortization) over the next two years, and because they chose to proceed with a capital increase despite this, I believe shareholder concerns will rise."
Ahn Yu-dong, a researcher at Kyobo Securities, expressed that it was a disappointing decision to secure the necessary funds to be implemented over 3 to 4 years through a capital increase. Lee Ji-ho, a researcher at MERITZ Securities, also commented that there is regret that Hanwha Aerospace's profits, which are expected to exceed 2 trillion won annually, would have been sufficient for investments.