Hanwha Ocean shares sink after KDB's sale of 4.2% stake

Investors rushed to dump Hanwha Ocean Co. shares early Tuesday after its second-largest shareholder, Korea Development Bank, cashed in on a 4.2% stake in South Korea’s No. 3 shipbuilder in a pre-market block trade for more than 1 trillion won ($695.8 million).

Hanwha Ocean shares ended down 12.1% at 78,500 won on Tuesday, wiping out all of last Friday's gains.

According to investment banking industry sources on Tuesday, Korea’s state-run KDB sold 13 million shares, or 4.2%, of Hanwha Ocean for 81,650 won apiece, about an 8.57% discount from Monday's closing price. 

KDB is expected to rake in about 1 trillion won from the sale, which took place in a block trade before the market opened today. 
 
Following the sale, KDB's stake in Hanwha Ocean dropped to 15.3% from 19.50%, or 59,738,211 shares, according to Seoul-based financial data provider FnGuide Inc. It remains the shipbuilder's No. 2 shareholder even after the stake sale. 

The stake disposal comes a day after the bank tapped institutional investor demand for the block sale of its stake in the shipbuilder during bookbuilding sessions. Korea Investment & Securities Co. and UBS led the sessions for domestic and foreign investors, respectively. 

KDB plans to unload its remaining shares of Hanwha Ocean in multiple block sales – a 3-5% stake each time, said an unnamed KDB official, adding that the state policy bank aims to ultimately sell off all of its stake in the shipbuilder.  

TO IMPROVE FINANCIAL SOUNDNESS

KDB assumed the shares of Hanwha Ocean, previously called Daewoo Shipbuilding & Marine Engineering (DSME), in 2000 as part of the state’s bailout program for the debt-ridden shipbuilder.

In 2022, Hanwha Group agreed with KDB, then DSME’s main creditor, to take over a 49.3% stake in DSME by purchasing all new shares issued by the troubled shipbuilder.

Immediately after the deal was finalized, KDB’s holdings in DSME dropped to 28.2% from 55.7%.

Korea’s state bank has decided to dispose of its stake in the shipbuilder to shore up its financial health, according to sources. Hanwha Ocean's share price has more than tripled since last November. 

Its BIS capital adequacy ratio, a barometer of a bank’s financial stability, stood at 13.9% as of end-2024, hovering just above the local financial authority's recommended 13% or higher.

The higher the risk assets, such as stocks, the lower the bank’s BIS ratio, which is a sign of deterioration in its financial stability.

TIME TO BUY THE DIP?

Due to KDB’s potential block sales of its stake in Hanwha Ocean, market analysts expect the shipbuilder stock to undergo a correction, but not for long.

Hanwha Ocean’s profit is expected to improve in the latter part of this year, partly driven by a fall in its low-priced ship order backlog, said Lee Ji-ni, an analyst at Daishin Securities Co.

“As the company plans to add a 6,500-ton floating crane and expand a floating deck, its (annual) production capacity for offshore plants will rise to four units from two units and for vessels to 40-44 units from 36-40 units thanks to a significantly improved efficiency in vessel construction,” said Lee.

On Monday, Hanwha Ocean announced in regulatory filings its plans to invest 332.8 billion won to expand its floating deck to ramp up its production capacity and 268.0 billion won to install a 6,500-ton floating crane to improve efficiency.

The facility investment plans were announced after it reported solid earnings for the first quarter of this year.

It reported 258.6 billion won in operating profit for the January-March period, nearly quintupled from the same period of last year and beating the market consensus by more than 100 billion won.

Its sales jumped 37.6% to 3.14 trillion won over the same period.

Hanwha Ocean’s robust results were largely credited to an increase in orders of high-value-added vessels, including liquefied natural gas (LNG) ships.

In a separate filing on Monday, the shipbuilder announced that it won 371 billion won worth of orders from a shipper in Oceania last Friday to build two units of very large crude carriers (VLCCs), with a plan to complete their construction by July 2025. 

(Updated with KDB's 4.2% stake sale in a block trade before the market opened on Tuesday, the sale price information and revisions in the title and lede.)  
 
Write to Da-Eun Choi and Yeon-Su Shin at max@hankyung.com

Sookyung Seo edited this article.