Regarding Hanwha Solutions' announcement that it will fill the funding gap created by downsizing its rights offering by using non-operating assets such as selling its equity in Hanwha Impact and securitizing its equity in Hanwha Hotels & Resorts, the securities industry expects it is likely the group will later buy back the equity at the group level. That is because Hanwha Impact and Hanwha Hotels & Resorts are core affiliates in the succession and spin-off process of the three Hanwha brothers — Vice Chairman Kim Dong-Kwan, President Kim Dong-Won, and Executive Vice President Kim Dong-Sun. However, if structured finance is used, financing costs could rise and liability repayment could slow.
According to the industry on the 22nd, the previous day Hanwha Solutions held a corporate briefing for securities firm analysts to explain the change in the rights offering structure. On the 17th, Hanwha Solutions held a board meeting and announced it would cut the shareholder-allotted rights offering from the original 2.3976 trillion won to 1.8144 trillion won. The company abruptly announced a trillion-won-scale shareholder-allotted rights offering two days after the regular shareholders meeting, but the financial authorities put the brakes on it.
Hanwha Solutions said it would fill the reduced 583.2 billion won in offering proceeds by using non-operating assets, including selling equity in Hanwha Impact and securitizing equity in Hanwha Hotels & Resorts. Non-operating assets refer to assets unrelated to a corporation's business activities, such as cash on hand, real estate, and marketable securities.
The value of Hanwha Solutions' equity in Hanwha Impact (47.9% stake) is 3.2548 trillion won, and the value of its equity in Hanwha Hotels & Resorts (49.7%) is 586.9 billion won. Hanwha Impact and Hanwha Hotels & Resorts are unlisted companies, and Hanwha Solutions holds minority equity without management control.
This effectively means the company belatedly accepted the market's demand to use non-operating assets first. A company official said, "In the case of the two companies' equity, they are unlisted and we do not have management control, so we could not guarantee an exit plan to prospective investors, which limited equity sales and securitization," and added, "We presented a self-rescue plan in a grasping-at-straws mindset, but nothing has been finalized yet."
In the securities industry, the view is that the assets will be used in a way that Hanwha Solutions or the group buys back the equity. That is because the two companies are related to the third-generation succession and spin-off of Hanwha Group's owner family.
Vice Chairman Kim Dong-Kwan, seen as the likely next chief, became CEO of the investment division at Hanwha Impact in 2024, strengthening his grip on the group. Hanwha Impact, an investment-type holding company, is leading the group's new-business investments in hydrogen and biotech. Hanwha Impact is the largest shareholder of Hanwha Energy, in which the three Hanwha brothers hold 80% equity, owning 52.07%. The remainder is held by Hanwha Solutions, led by Vice Chairman Kim Dong-Kwan.
Hanwha Hotels & Resorts is the main business unit of the youngest, Executive Vice President Kim Dong-Sun. Kim is expanding the dining and retail business with a focus on Hanwha Hotels & Resorts and Hanwha Galleria. The largest shareholder of Hanwha Hotels & Resorts is Hanwha Corp. (49.80%). It posted a consolidated net loss through 2024 but returned to profit last year.
Proposals to use non-operating assets include a total return swap (TRS) contract and fundraising with a put option attached. In a TRS, Hanwha Solutions transfers non-operating asset equity to a securities firm, and the firm raises funds using that equity as collateral. Hanwha Solutions pays the firm a certain fee and is responsible for any difference if the equity value rises or falls. It can secure cash immediately and later buy back the equity. The securities firm earns fees and has its principal guaranteed.
Another option is to sell equity to a private equity fund with a put option as a safeguard. Investors eliminate exit uncertainty while effectively investing in a kind of "high-yield bond." A pre-IPO (pre-listing equity investment) is similar. Last year, among the three Hanwha brothers, the second, President Kim Dong-Won of Hanwha Life Insurance, and the third, Executive Vice President Kim Dong-Sun, sold part of Hanwha Energy equity to financial investors under a contract that if the company fails to list by 2031, they would buy back the equity.
However, the increase in financing costs is a burden. Of Hanwha Solutions' rights offering proceeds, 900 billion won will go to liability repayment and 900 billion won to capital expenditures. While the intent is to reduce the burden on shareholders, if financing costs rise, the pace of liability repayment slows.
Meanwhile, after receiving the amended filing, the financial authorities are said to be closely examining Hanwha Solutions' shareholder communication process. An industry official said, "The controversy over Hanwha Solutions' rights offering fundamentally arose from insufficient shareholder communication," adding, "It is regrettable that the company ignored market demands and only belatedly presented a revised plan after the financial authorities blocked it."