Hanwha Ocean to raise $1.5 bn to boost warship business

South Korea's Hanwha Ocean Co. will secure 2 trillion won ($1.5 billion) in fresh capital through rights issues, the company said on Wednesday, as the world’s second-largest shipbuilder is making a push into next-generation warship and eco-friendly vessel markets.

The new capital to be raised is about one-fourth of its current market capitalization of 7.6 trillion won. All the proceeds will be spent on expanding its defense-related business with a focus on the warship and surface combatant segments, worth a combined $243 billion in terms of market size.

The rights issues come three months after Hanwha Group closed the purchase of a 48.16% stake in Hanwha Ocean, formerly Daewoo Shipbuilding & Marine Engineering Co. (DSME), for 2 trillion won in May.

“To meet global security demand, we will secure overseas production bases, alongside unmanned and advanced technologies,” Hanwha Ocean said.

“In order to enter the global maritime defense market centered on the US and Europe, we will put our priority on building defense business infrastructure and further widening our gap with competitors.”

Of the 2 trillion won in proceeds, 900 billion won will be used to expand Hanwha Ocean's naval ship facilities.

The new shares will be offered at 22,350 won apiece, a 36.5% discount from its Wednesday closing price of 35,200 won. Shareholders with one Hanwha Ocean share will receive 0.33 of a share.

Hanwha Aerospace Co., an aircraft engine and parts manufacturing unit, holds a 24.08% stake in the shipbuilder. Hanwha Systems Co., a naval weapon system provider, has a 12.04% stake.

In total, Hanwha Group units will inject a combined 800 billion won into the shipbuilder by participating in the rights offering.

But the state-run Korea Development Bank, the second largest shareholder with a 27.55% stake, is said not to be buying Hanwha Ocean's new shares.

Hanwha Ocean, a leading naval warship builder, is widely expected to bolster Hanwha Group’s defense business, one of its four growth pillars, along with offshore wind energy, smart yards and eco-friendly vessels.

The chemicals-to-defense conglomerate is redoubling efforts to win orders for next-generation submarines from Canada, Poland and other countries. Its submarines to be produced will be armed with Hanwha Aerospace’s submarine energy storage systems and Hanwha Systems’ unmanned combat systems.

Hanwha Aerospace is also striving to advance into the aircraft maintenance, repair and operation market.

ECO-FRIENDLY VESSELS

Hanwha Ocean will earmark 600 billion won to develop eco-friendly propulsion systems and their carriers to employ ammonia and hydrogen to comply with low-emission rules.

It is also developing Level 4 autonomous ships.

Of the remaining 500 billion won, 200 billion won will go to its offshore wind energy business, whose market is expected to grow 18% a year.

The company will spend 300 billion won to develop smart yards based on robots and artificial intelligence. A smart yard refers to a digital and physical system enabling the collaboration of various companies at a logistics hub.

In the first half of this year, Hanwha Ocean logged an operating loss of 221.8 billion won, half the previous year’s shortfall of 569.6 billion won. Sales leapt 34% on-year to 3.3 trillion won.

By 2040, the shipbuilder aims to earn 5 trillion won in operating profit on sales of 30 trillion won.

Hanwha Group Vice Chairman Kim Dong-kwan, the eldest son of the group Chairman Kim Seung-youn, oversees its solar energy and defense units. He spearheaded the Hanwha Ocean acquisition.

The shipbuilding arm's debt-to-equity ratio stood at 485% as of the end of June, down sharply from 1,858% three months before. Its order backlog reached 27 trillion won as of end-June.

Its share price has declined 25% since the start of this month. 

Write to Jae-Fu Kim at hu@hankyung.com
 
 


Yeonhee Kim edited this article