Hanwha Aerospace slashes planned rights offering size to $1.6 billion

Hanwha Aerospace Co., a leading South Korean defense company, said on Tuesday it plans to slash the size of its proposed rights offering to 2.3 trillion won ($1.6 billion) from 3.6 trillion won, with the remaining 1.3 trillion won to be covered through a third-party allotment involving affiliates.

The defense affiliate of Korea’s chemicals-to-defense conglomerate Hanwha Group said in a regulatory filing that it plans to issue 4.27 million new shares, down 28% from the originally planned 5.95 million.

The trimmed portion of the offering worth 1.3 trillion won is now expected to be raised through a separate share placement to three group affiliates: Hanwha Energy, Hanwha Impact Partners and Hanwha Energy Singapore.

If finalized, the new arrangement would allow Hanwha Energy, controlled by the three sons of Hanwha Group Chairman Kim Seung-youn, to participate in the capital raise without a significant discount – a move analysts see as an attempt to quell governance concerns.

Last month, Hanwha Aerospace said it would raise 3.6 trillion won in new capital through a rights offering – its largest ever – to expand its global weapons and maritime production plants and purchase stakes in related facilities.

The rights will first be issued to existing shareholders and any unsubscribed shares will be sold via a public offering.

Shares of Hanwha Aerospace finished 8.4% higher at 696,000 won on Tuesday, outperforming the broader Kospi benchmark index’s 0.3% rise.

BACKLASH

The share sale plan, however, faced a backlash as it came about a week after Hanwha Aerospace spent 1.3 trillion won, or 94.5% of its cash and cash equivalent assets, to buy a 7.3% stake in Hanwha Ocean Co. from Hanwha Impact and Hanwha Energy.

Hanwha Aerospace shareholders criticized the conglomerate for taking advantage of the defense company’s fat cash coffer to avoid hefty inheritance taxes during the leadership transition in the family-owned conglomerate.

Hanwha Group denied the accusation, saying that Hanwha Aerospace has acquired an additional stake in Hanwha Ocean to aid the shipbuilding unit’s business expansion in overseas markets.

The new plan, which would channel the 1.3 trillion won back into Hanwha Aerospace via the third-party placement, is seen as a way to address mounting scrutiny, analysts said.

Hanwha Energy Chief Executive Lee Jae-kyu said the original share sale plan was “aimed at improving our financial structure and securing investment capital, not succession planning.”

“To avoid unnecessary controversy, we are reviewing participation in Hanwha Aerospace’s third-party allotment,” he said.

Write to Han-jong Choi at onebell@hankyung.com

In-Soo Nam edited this article.